IRS Reverses Its Aggressive ‘Bad Boy’ Loan Position

The US Treasury Department

WASHINGTON, DC—In a legal memo released on April 15^th, the Internal Revenue Service backed away from the implications of an internal memo written by the Internal Revenue Service’s Office of Chief Counsel and published in February of this year.  The about face came after a meeting with The Real Estate Roundtable and their tax and loan counsel in March.

Essentially what has happened is that the IRS has come to recognize that a lender routinely uses this provision to protect itself against a scenario in which the borrower or guarantor undertakes “bad acts” that would somehow prevent the lender from repossessing the property in a default, according to a client brief by Thomas Lawson and Alan J. Tarr of Loeb & Loeb LLP.