IRS concludes equity-linked debt creates straddle, requires capitalization [TAX ALERT]

April 29, 2013

In CCA 201310027, the IRS has concluded that contingent debt instruments a corporation issued referencing portfolio shares held by the corporation are part of a straddle under Section 1092. As a result, the Service determined that interest expense on the instruments must be capitalized under Section 263(g)(1), and that the basis of new shares acquired in a non-taxable exchange includes repurchase premium and interest capitalized into the basis of shares transferred.

Further details are available from the Ernst & Young Tax Alert which can be accessed using the link below:

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