Lehman Brothers Financial SA (LEHNQ)

[SwissCheeseAccount]

https://www.thetaxadviser.com/issues/2009/apr/dischargeofindebtednessconversionvscontributionofindebtedness.html

Sec. 108(e)(6) overrides the provisions of Sec. 118 (which exclude contributions of capital from the gross income of the corporation) and provides that a capital contribution by a shareholder of the corporation’s own debt is treated as if the debtor corporation satisfied the debt with an amount of money equal to the shareholder’s adjusted basis in the debt. Thus, if the shareholder-creditor’s basis in the contributed debt is at least equal to the adjusted issue price of the debt, the debtor corporation will avoid COD income upon contribution of such debt. However, if the shareholder’s basis in the debt is less than the adjusted issue price of the debt, the debtor corporation will recognize COD income.