Reduction in basis of indebtedness Clause Samples

The 'Reduction in basis of indebtedness' clause governs how the principal amount of a debt is adjusted, typically in the context of debt forgiveness or restructuring. In practice, this clause specifies that when a debtor's obligation is reduced or discharged, the tax basis of the related property or asset is also reduced by a corresponding amount. For example, if a lender forgives part of a loan, the borrower's basis in the collateral property may be decreased to reflect the forgiven debt. This mechanism ensures that taxpayers do not receive a double benefit—both relief from debt and a high tax basis—thereby maintaining fairness and preventing tax avoidance.
Reduction in basis of indebtedness. (i) A has been the sole shareholder in Cor- poration S since 1992. In 1993, A loans S $1,000 (Debt No. 1), which is evidenced by a ten- year promissory note in the face amount of $1,000. In 1996, A loans S $5,000 (Debt No. 2), which is evidenced by a demand promissory note. On December 31, 1996, the basis of A’s stock is zero; the basis of Debt No. 1 has been reduced under paragraph (b) of this section to $0; and the basis of Debt No. 2 has been re- duced to $1,000. On January 1, 1997, A loans S $4,000 (Debt No. 3), which is evidenced by a demand promissory note. For S’s 1997 tax- able year, the sum of the amounts specified in section 1367(a)(1) (in this case, nonsepa- rately computed income and the excess de- duction for depletion) is $6,000, and the sum of the amounts specified in section 1367(a)(2) (B), (D), and (E) (in this case, items of sepa- rately stated deductions and losses, noncap- ital, nondeductible expenses, and certain oil and gas depletion deductions—there is no nonseparately computed loss) is $10,000. Cor- poration S makes no payments to A on any of the loans during 1997. (ii) The $4,000 excess of loss and deduction items is applied to reduce the basis of each indebtedness in proportion to the basis of that indebtedness over the aggregate bases of the indebtedness to the shareholder (de- termined immediately before any adjust- ment under section 1367(b)(2)(A) and para- graph (b) of this section is effective for the taxable year). Thus, the basis of Debt No. 2 is reduced in an amount equal to $800 ($4,000 (excess) × $1,000 (basis of Debt No. 2)/$5,000 (total basis of all debt)). Similarly, the basis in Debt No. 3 is reduced in an amount equal to $3,200 ($4,000 × $4,000/$5,000). Accordingly, on December 31, 1997, A’s basis in his stock is zero and his bases in the three debts are as follows: Debt 1/1/96 basis 12/31/96 reduction 1/1/97 basis 12/31/97 reduction 1/1/98 basis No. 1 .. $1,000 $1,000 $0 $0 $0 No. 2 .. 5,000 4,000 1,000 800 200 No. 3 .. ............ ................ 4,000 3,200 800
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Related to Reduction in basis of indebtedness

  • Prepayments, Etc. of Indebtedness (a) None of the Covenant Parties shall, nor shall they permit any of their Restricted Subsidiaries to, directly or indirectly, prepay, redeem, purchase, defease or otherwise satisfy prior to the scheduled maturity thereof in any manner (it being understood that payments of regularly scheduled interest shall be permitted) the Senior Subordinated Debt, any subordinated Indebtedness incurred under Section 7.03(g) or any other Indebtedness that is required to be subordinated to the Obligations pursuant to the terms of the Loan Documents, but excluding any Existing Indebtedness or Outstanding Indebtedness (collectively, “Junior Financing”) or make any payment in violation of any subordination terms of any Junior Financing Documentation, except (i) the refinancing thereof with the Net Proceeds of any Indebtedness (to the extent such Indebtedness constitutes a Permitted Refinancing and, if such Indebtedness was originally incurred under Section 7.03(g), is permitted pursuant to Section 7.03(g)), to the extent not required to prepay any Loans pursuant to Section 2.05(b), (ii) the conversion of any Junior Financing to Equity Interests (other than Disqualified Equity Interests) of the Company or any of its direct or indirect parents, (iii) the prepayment of Indebtedness of any Covenant Party or any Restricted Subsidiary of a Covenant Party to the extent permitted by the Collateral Documents, (iv) any payments in respect of Senior Subordinated Debt constituting bridge loans with the proceeds of any other Junior Financing and (v) prepayments, redemptions, purchases, defeasances and other payments in respect of Junior Financings prior to their scheduled maturity in an aggregate amount not to exceed $250,000,000 plus, if the Total Leverage Ratio calculated on a Pro Forma Basis is less than or equal to 7.00 to 1.00, the portion, if any, of the Cumulative Credit on such date that ▇▇▇▇▇▇▇ elects to apply to this paragraph, such election to be specified in a written notice of a Responsible Officer of ▇▇▇▇▇▇▇ calculating in reasonable detail the amount of Cumulative Credit immediately prior to such election and the amount thereof elected to be so applied. (b) None of the Covenant Parties shall, nor shall they permit any of their Restricted Subsidiaries to, directly or indirectly, amend, modify or change in any manner materially adverse to the interests of the Lenders any term or condition of any Junior Financing Documentation without the consent of the Administrative Agent (which consent shall not be unreasonably withheld).

  • Prepayments of Indebtedness Prepay, redeem, purchase, defease or otherwise satisfy prior to the scheduled maturity thereof in any manner any Permitted Indebtedness (other than the Obligations or Indebtedness between Loan Parties), or make any payment in violation of any subordination terms of any Subordinated Indebtedness, except (a) as long as no Event of Default then exists or would arise therefrom, regularly scheduled or mandatory repayments, repurchases, redemptions, defeasances or other satisfaction of Permitted Indebtedness (other than Subordinated Indebtedness), (b) as long as no Event of Default has occurred and is continuing, voluntary prepayments, redemptions, repurchases, defeasances or other satisfaction of Permitted Indebtedness (but excluding any payment in violation of the subordination terms of any Subordinated Indebtedness) (i) in an amount less than $6,000,000 in the aggregate during the Availability Period as long as the Availability Condition is satisfied, or (ii) constituting intercompany Indebtedness owing by a Loan Party to any Subsidiary that is not a Loan Party so long as an amount equal to such amount prepaid, redeemed, purchased or otherwise satisfied is transferred to a Loan Party substantially concurrently with such prepayment, redemption, purchase or other satisfaction, (c) as long as no Event of Default then exists, repayments and prepayments of Subordinated Indebtedness in accordance with the subordination terms thereof, (d) voluntary prepayments, repurchases, redemptions, defeasances or other satisfaction of Permitted Indebtedness (but excluding on account of any Subordinated Indebtedness) as long as the Payment Conditions are satisfied, and (e) any Permitted Amendment/Refinancings of such Indebtedness.

  • Payments of Indebtedness Such Obligor will not, and will not permit any of its Subsidiaries to, make any payments in respect of any Indebtedness other than (i) payments of the Obligations, (ii) scheduled payments of other Indebtedness and (iii) repayment of intercompany Indebtedness permitted in reliance upon Section 9.01(f).

  • Prepayment of Indebtedness At any time, directly or indirectly, prepay any Indebtedness (other than to Lenders), or repurchase, redeem, retire or otherwise acquire any Indebtedness of any Borrower.

  • Prepayments of Indebtedness, etc None of the Credit Parties will (a) if any Default or Event of Default has occurred and is continuing or would be directly or indirectly caused as a result thereof, (i) after the issuance thereof, amend or modify (or permit the amendment or modification of) any of the terms of any Indebtedness if such amendment or modification would add or change any terms in a manner adverse to the Banks, including, but not limited to, shortening the final maturity or average life to maturity or requiring any payment to be made sooner than originally scheduled or increasing the interest rate applicable thereto or changing any subordination provision thereof, or (ii) except as set forth in Section 6.15, make (or give any notice with respect thereto) any voluntary or optional payment or any prepayment or any redemption or any acquisition for value of (including without limitation, by way of depositing money or securities with the trustee with respect thereto before due for the purpose of paying when due), refund, refinance or exchange of any other Indebtedness; (b) after the issuance thereof, amend or modify, or permit the amendment or modification of (i) any of the subordination provisions of any Subordinated Debt; or (ii) any other material terms of any Subordinated Debt, except (A) for a waiver by the holder of such Subordinated Debt with respect to compliance with the terms thereof, and (B) after fifteen (15) days prior written notice to the Agent and each of the Banks, of any such amendment or modification which is not adverse to either the issuer thereof or to the interests of the Banks in their capacity as the holders of any of the Total Revolving Obligations, or (c) make any payment, prepayment, redemption, acquisition for value of (including without limitation, by way of depositing money or securities with the trustee with respect thereto before due for the purpose of paying when due), refund, refinance or exchange of any Subordinated Debt (including, without limitation, interest thereon); provided, however, the foregoing shall not prohibit the following, (i) any payment, prepayment, redemption, acquisition made from and to the extent of the Net Proceeds of any Equity Transaction as permitted by Section 7.7(iv), (ii) in the case of Subordinated Debt owing to a member of the Management Group, to the extent permitted in Section 7.7(iii), and (iii) upon issuance of the Exchange Debentures, payments-in-kind of interest on the Exchange Debentures, but only to the extent such payments are not prohibited by Section 10.3 of the Exchange Debenture Indenture.