Navigating the Complex Interplay Between Sections 108(e)(6) and 367(c)(2)

This article originally appeared in the May 2025 issue of The Tax Adviser.

Under Internal Revenue Code Section 108(e)(6), a debtor corporation can acquire its indebtedness from a shareholder as a contribution to capital, with the indebtedness treated as satisfied for an amount of money equal to the shareholder’s basis in the debt. Section 108(e)(6) is a common tool in the context of resolving intercompany debt. However, when the debtor is a foreign corporation, questions arise regarding the interplay between Section 108(e)(6) and Section 367(c)(2) — specifically the potential for Section 108(e)(8) to apply, possibly resulting in more cancellation of indebtedness income. 

Understanding the nuances of these provisions and their potential implications remains critical for effective tax planning and compliance in the context of international transactions.

BDO’s Doug Bekker, Richard Liebman, and Alina Pierce provide details in the full article in The Tax Adviser.