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WASHINGTON, DC-Buried in the stimulus bill is a provision that will have an impact on CRE loan borrowers who are hoping to modify their debt. Specifically, the American Recovery and Reinvestment Act of 2009 modifies Section 108 of the Internal Revenue Code of 1986 with respect to the cancellation of indebtedness income, or COD Income, rules. Essentially, what the stimulus bill does is allow borrowers to defer this tax penalty for five years.

But before borrowers can properly access how this change will help them, more details and guidance needs to be provided by the IRS. Right now the agency is still absorbing the new rule and hasn’t issued any guidance, according to Harold Levine, chair of Herrick, Feinstein LLP’s tax department in New York City. “We visited them last week and that very day the agents were in a seminar having the rule explained to them,” Levine tells GlobeSt.com. The new rule is broadly written, he explains, which means how the IRS interprets it will be crucial.

This is what the rule does say, Levine writes in a client advisory: Under the Recovery Act, on the reacquisition of any applicable debt instrument which occurs after December 31, 2008 and before January 1, 2011, the debtor may elect to report any resulting COD Income ratably over five years. The inclusion period begins as follows:

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