SECTION 3. SCOPE

This revenue procedure applies to taxpayers that realize COD income from a reacquisition after December 31, 2008, and before January 1, 2011, of an applicable debt instrument, as provided in § 108(i).

acquisition is an acquisition for which an election under § 108(i) may be made.

.04 General Requirements for the Sec- tion 108(i) Election. Section 108(i)(5)(B) provides, in general, that a taxpayer makes the § 108(i) election by including a statement that clearly identifies the applicable debt instrument with the return of tax imposed for the taxable year in which the reacquisition of the instrument occurs. (For purposes of this revenue procedure, a return of tax or income tax return includes an information return, and a taxpayer includes a person that files an information return.) The statement must include the amount of income to which § 108(i)(1) applies and other information the Service may prescribe. Once made, a § 108(i) election is irrevocable and, except as provided in section 7 of this revenue procedure, may not be modified.

.05 Section 108(i) Elections Made by Pass-through Entities. In the case of COD income realized by a pass-through entity from the reacquisition of an applicable debt instrument, the pass-through entity makes the § 108(i) election. Section 108(i)(5)(B)(iii). .06 Additional Information on Subse- quent Years’ Returns. Section 108(i)(7) authorizes the Service to issue guidance necessary or appropriate for applying § 108(i), including requiring reporting the election and other information on returns of tax for subsequent taxable years.

.07 Exclusivity. Section 108(i)(5)(C) provides that if a taxpayer elects to apply § 108(i) to an applicable debt instrument, § 108(a)(1)(A), (B), (C), and (D) do not apply to COD income deferred under § 108(i).

.08 Allocation of Deferred COD In- come on Partnership Indebtedness. Section 4.04(3) of this revenue procedure describes how a partnership may elect under § 108(i) to defer a portion of the COD income realized from the reacquisition of an applicable debt instrument. If a partnership elects to defer all or any portion of COD income realized from the reacquisition of an applicable debt instrument, all of the COD income with respect to that debt instrument, without regard to § 108(i), is allocated to the partners in the partnership immediately before the reacquisition in the manner in which the income would be included in the distributive shares of these

partners under § 704 and the regulations thereunder, including § 1.704–1(b)(2)(iii). Each partner’s share of this COD income is the partner’s COD income amount (“COD income amount”). The partner’s COD income amount that is deferred under § 108(i) is the partner’s deferred amount (“deferred amount”). The partner’s COD income amount that is not deferred and is included in the partner’s distributive share of partnership income for the taxable year of the partnership in which the reacquisition occurs is the partner’s included amount (“included amount”).

.09 Partner’s Deferred § 752 Amount . A decrease in a partner’s share of a partnership liability resulting from the reacquisition of an applicable debt instrument that is not treated as a current distribution of money to the partner under § 752 by reason of § 108(i)(6) is the partner’s deferred § 752 amount (“deferred § 752 amount”). A partner’s deferred § 752 amount may not exceed the lesser of (i) the partner’s deferred amount or (ii) gain that the partner would recognize in the year of reacquisition under § 731 as a result of the reacquisition absent § 108(i)(6). To determine the amount of gain the partner would recognize under clause (ii) of the preceding sentence, the amount of any deemed distribution of money under § 752(b) resulting from the decrease in the partner’s share of a reacquired applicable debt instrument that is treated as an advance or draw of money under § 1.731–1(a)(1)(ii) is determined as if no COD income resulting from the reacquisition of the applicable debt instrument is deferred under § 108(i). See Rev. Rul. 92–97, 1992–2 C.B. 124, and Rev. Rul. 94–4, 1994–1 C.B. 195. A partner’s deferred § 752 amount is treated as a distribution of money to the partner under § 752 at the same time, and to the extent remaining in the same amount, as the partner recognizes the COD income deferred under § 108(i).

.10 Allocation of Deferred COD In- come on S Corporation Indebtedness . For purposes of § 108(i), an S corporation’s COD income deferred under § 108(i) is shared pro rata only among those shareholders that are shareholders of the S corporation immediately before the reacquisition transaction.

.11 Deferred COD Income, Earnings and Profits, and Alternative Minimum Tax- able Income.

2009–36 I.R.B. 310 September 8, 2009

eral description of the person’s trade or business to which the applicable debt instrument is connected;

(c) A general description of the reacquisition transaction or transactions generating the COD income (including the date(s) of the transaction(s));

(d) The total amount of COD income for the applicable debt instrument that results from the reacquisition (in the case of a partnership, the aggregate of the partners’ COD income amounts) and a general description of the manner in which this amount is calculated;

(e) The amount of COD income for the applicable debt instrument that the taxpayer is electing to defer under § 108(i);

(f) In the case of a partnership, a list of partners that have a deferred amount, their identifying information and each partner’s deferred amount; and in the case of an S corporation, a list of shareholders with COD income deferred under § 108(i), their identifying information and each shareholder’s share of the S corporation’s deferred COD income; and

(g) In cases in which a new debt instrument is issued or deemed issued in exchange for the applicable debt instrument (including exchanges under § 108(e)(4), § 108(i)(2)(B), and § 1.1001–3), the issuer’s name, the issuer’s taxpayer identification number, if any, a general description of the new debt instrument and whether the new debt instrument has OID, and if the new debt instrument has OID, a schedule of the OID that the issuer expects to accrue each taxable year on the instrument and the amount of OID that the issuer expects to defer under § 108(i)(2) each taxable year.

.06 Supplemental information . The statement described in section 4.05 of this revenue procedure may specify for each applicable debt instrument an amount greater than the amount identified in section 4.05(2)(e) of this revenue procedure that the taxpayer elects to defer under § 108(i) in the event the Service subsequently concludes that the taxpayer understated the amount of COD income described in section 4.05(2)(d) of this revenue procedure. This additional amount of COD income the taxpayer elects to defer may be described as the entire additional COD income, or as a percentage of any additional COD income. If the taxpayer is a partnership, the partnership must specify each partner’s share of the partnership’s