IRS Adopts New Treasury Regulation on Modification of Distressed Debt

Summary: In June 2010, the IRS issued proposed amendments to Treasury Regulations (the “Regulation”), relating to the modification of debt instruments. The proposed amendments clarified the extent to which the deterioration in the financial condition of the issuer is taken into account to determine whether a modified debt instrument will be treated as reissued for U.S. federal income tax purposes and/or recharacterized as an instrument or property right that is not debt for U.S. federal income tax purposes. Last week, the IRS adopted these amendments in final form. The attached Client Alert provides an overview of the amendments.