2011 Session

Budget Amendments - SB800 (Committee Approved)

Cancellation of Debt (language only)

Item 3-5.10 #1s

Item 3-5.10 #1s

Adjustments and Modifications to Tax Collections
Treatment of Certain Cancellation of Debt Income

Page 469, after line 40, insert:
Notwithstanding any other provision of law, income from the discharge of indebtedness in connection with the reacquisition of an "applicable debt instrument" under § 108 (i) of the Internal Revenue Code reacquired in taxable year 2010 may be included in the taxpayer's Virginia taxable income ratably over a 3-taxable-year period beginning with taxable year 2010 for transactions completed in taxable year 2010 on or before April 21, 2010.  If the taxpayer does not elect to include such income ratably over the 3-taxable-year period, then such income shall be fully included in the taxpayer's Virginia taxable income for taxable year 2010."

(This amendment extends a provision of tax conformity related to "cancellation of debt" that was adopted last year in Chapter 874 (2010) to a portion of taxable year 2010 income. As part of the American Recovery and Reinvestment Act of 2009, Congress enacted a special treatment for certain “cancellation of debt” income under §108 (i) of the IRC. Under this provision, corporations that had income that would have been recognized and treated as taxable income from certain corporate restructurings were allowed the election to defer recognition of this income for five years and then include it in income over another five years. This special federal treatment was available for taxable years 2009 and 2010, and would have the same affect on taxable income in Virginia, if Virginia elected to conform to this federal change. Introduced SB 30 (2010) included legislation to deconform from this federal treatment to avoid a negative impact on general fund revenue in fiscal years 2010 through 2012. The adopted budget included action to lessen the impact on any company affected by this deconformity for taxable year 2009, thereby allowing the option of spreading the 2009 taxable income over three years. This amendment allows the same taxpayer option for income generated in tax year 2010, up to the point that the matter was finally resolved at the April 2010 reconvened session.)