IRS Issues Final Regulations on Partnership Debt-for-Equity Exchanges

Summary: Debtor partnerships often transfer an interest in such partnership to a creditor in satisfaction of the partnership’s recourse or nonrecourse debt (known as a “debt-for-equity” exchange). Debt-for-equity exchanges occur for a number of reasons. The U.S. federal income tax consequences of debt-for-equity exchanges, however, have not been entirely clear. Therefore, the U.S. Treasury Department has recently issued final regulations as guidance in this area.