This column continues the discussion of the allocation of cancellation of indebtedness income (COD Income) in the partnership context. As previously discussed1 the restructuring of a troubled loan secured by real property can result in COD Income to the owners of the real estate. When the real property is owned in a partnership or limited liability company (LLC), additional issues arise.
The Section 704(b) Regulations. The 704(b) Regulations2 provide no guidance or discussion as to how COD Income should be allocated by a partnership or LLC among its partners or members. A reasonable analysis of the Code and regulations is that the amount of COD Income allocated to a partner should be equal to the portion of the debt discharged which is allocated to the partner under Code Section 752.
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