Small business need-to-know. Don’t forget your best answers are still and always from your chosen CPA!!
Excerpt: When a debtor transfers a debt to a creditor entity it controls, the transaction can be tax free under Sec. 351 and 357(a).
In a liquidation of a subsidiary corporation, the subsidiary recognizes no gain or loss on the transfer of its assets in liquidation to its 80% parent, including distributions in payment of debt owed to the parent corporation.
Transfers by debtor partners to a creditor partnership are subject to disguised sale rules, while those by debtor partnerships to creditor partners fall under Secs. 731 and 752.
Special rules apply to cancellation of debt income in transfers of acquired debt and transfers of installment obligations.
Read full article via Taxing the Transfer of Debts Between Debtors and Creditors. From AICPA Tax Advisor