Tax implication: Intercompany debt-waiver between parent and subsidiary
A U.S. subsidiary (Inc) has a Nordic parent company (A/S) that is bankrupt and now under trustee management. The trustee is considering forgiving the intercompany payable recorded on Inc's books. This article explores the federal income tax impact of such debt forgiveness on Inc and analyzes whether exception rules apply to related-party transactions.
I work for a US subsidiary (I'll call Inc) whose parent company was based in the Nordics (I'll call A/S) and filed for bankruptcy. A/S no longer exist and is now managed by a Trustee over there. Under the Inc's books, there is an intercompany balance owed that is now being considered to be waived by the Trustee. If this intercompany debt is waived, is this taxable to Inc upon filing of federal tax return? or is there an exception to the rule if the debt is due to a transaction between related parties?