Deferral of Cancellation of Debt Income

Under the American Recovery and Reinvestment Act of 2009, an eligible business that repurchases it’s debt in 2009 and 2010 can elect to recognize cancellation of debt income ratably over a five-taxable-year inclusion period, beginning with the taxpayer’s fourth or fifth taxable year after the year the debt is repurchased [IRC §108(i)]. The IRS recently came out with guidance on what kinds of businesses and what types of debt qualify for cancellation of debt income deferral.