In handling discharge of indebtedness, the line between solvency and insolvency is of critical importance. If a debtor is insolvent, the debtor does not have discharge of indebtedness income although the debtor must “bleed” by reducing tax attributes and reducing the income tax basis of assets. In the event the debtor is solvent, with two exceptions, a debtor with discharge of indebtedness has ordinary income. Those exceptions are for real property business debt and qualified farm indebtedness.



To view the content in your browser, please download Adobe Reader or, alternately,
you may Download the file to your hard drive.

NOTE: The latest versions of Adobe Reader do not support viewing PDF files within Firefox on Mac OS and if you are using a modern (Intel) Mac, there is no official plugin for viewing PDF files within the browser window.