II 

Calendar No. 11 

111TH CONGRESS 

1ST SESSION S. 33 

To amend the Internal Revenue Code of 1986 with respect to the proper 

tax treatment of certain indebtedness discharged in 2009 or 2010, and 

for other purposes. 

IN THE SENATE OF THE UNITED STATES 

JANUARY 6, 2009 

Mr. ENSIGN introduced the following bill; which was read the first time 

JANUARY 7, 2009 

Read the second time and placed on the calendar 

A BILL 

To amend the Internal Revenue Code of 1986 with respect 

to the proper tax treatment of certain indebtedness discharged in 2009 or 2010, and for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. PROPER TAX TREATMENT OF CERTAIN FINAN4 CIAL INDEBTEDNESS DISCHARGED IN 2009 

5 OR 2010. 

6 (a) IN GENERAL.—Section 108(a)(1) of the Internal 

7 Revenue Code of 1986 (relating to exclusion from gross 


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•S 33 PCS

1 income) is amended by striking ‘‘or’’ at the end of sub2 paragraph (D), by striking the period at the end of sub3 paragraph (E) and inserting ‘‘, or’’ and by adding at the 

4 end the following new subparagraph: 

5 ‘‘(F) the indebtedness discharged is appli6 cable financial indebtedness which is discharged 

7 after December 31, 2008, and before January 

8 1, 2011.’’. 

9 (b) APPLICABLE FINANCIAL INDEBTEDNESS.—Sec10 tion 108 of such Code is amended by adding at the end 

11 the following new subsection: 

12 ‘‘(i) DEFINITIONS AND RULES RELATING TO APPLI13 CABLE FINANCIAL INDEBTEDNESS.—For purposes of sub14 section (a)(1)(F)— 

15 ‘‘(1) APPLICABLE FINANCIAL INDEBTED16 NESS.—The term ‘applicable financial indebtedness’ 

17 means indebtedness— 

18 ‘‘(A) which was originally issued by a cor19 poration, or by a partnership engaged in a 

20 trade or business (other than a trade or busi21 ness of trading in stocks or securities for the 

22 partnership’s own account), and 

23 ‘‘(B) which is— 

24 ‘‘(i) indebtedness originally issued or 

25 syndicated by a financial institution (as deVerDate Nov 24 2008 01:58 Jan 08, 2009 Jkt 079200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S33.PCS S33

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1 fined in section 582(c)(2) without regard 

2 to subparagraph (C) thereof) or a deposi3 tory institution holding company (as de4 fined in section 3(w)(1) of the Federal De5 posit Insurance Act (12 U.S.C. 

6 1813(w)(1)), 

7 ‘‘(ii) indebtedness which— 

8 ‘‘(I) constitutes a security within 

9 the meaning of the Securities Act of 

10 1933, and 

11 ‘‘(II) was originally issued pursu12 ant to a registration statement that 

13 was declared effective under such Act 

14 or pursuant to an exemption from, or 

15 in a transaction not subject to, the 

16 registration requirements of such Act, 

17 or 

18 ‘‘(iii) indebtedness that is traded on 

19 an established market (within the meaning 

20 of section 1273(b)(3)). 

21 ‘‘(2) APPLICABLE DISCHARGES.—Subsection 

22 (a)(1)(F) shall only apply to a discharge of applica23 ble financial indebtedness if such discharge is by 

24 reason of— 


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1 ‘‘(A) the acquisition of the indebtedness by 

2 the issuer of the indebtedness, 

3 ‘‘(B) the acquisition of the indebtedness of 

4 the issuer by a person related, or who becomes 

5 related, to the issuer of the indebtedness from 

6 a person who is not related to the issuer, or 

7 ‘‘(C) the significant modification of the in8 debtedness (within the meaning of section 

9 1001). 

10 For purposes of subparagraph (B), the determina11 tion of whether a person is related to another person 

12 shall be made in the same manner as under sub13 section (e)(4).’’. 

14 (c) COORDINATION OF EXCLUSIONS.—Section 

15 108(a)(2) of such Code is amended— 

16 (1) by striking ‘‘and (E)’’ in subparagraph (A) 

17 and inserting ‘‘(E), and (F)’’, and 

18 (2) by adding at the end the following new sub19 paragraph: 

20 ‘‘(D) FINANCIAL INDEBTEDNESS EXCLU21 SION TAKES PRECEDENCE OVER INSOLVENCY

22 EXCLUSION UNLESS ELECTED OTHERWISE.— 

23 Paragraph (1)(B) shall not apply to a discharge 

24 to which paragraph (1)(F) applies unless the 


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1 taxpayer elects to apply paragraph (1)(B) in 

2 lieu of paragraph (1)(F).’’. 

3 (d) EARNINGS AND PROFITS.—Section 312(l) of such 

4 Code is amended by adding at the end the following new 

5 paragraph: 

6 ‘‘(3) DISCHARGE OF CERTAIN FINANCIAL IN7 DEBTEDNESS.—The earnings and profits of a cor8 poration shall not include income from a discharge 

9 of indebtedness to which section 108(a)(1)(F) ap10 plies.’’. 

11 (e) OTHER SPECIAL RULES.— 

12 (1) TREATMENT AS MARKET DISCOUNT

13 BOND.—For purposes of the Internal Revenue Code 

14 of 1986, any indebtedness acquired in a transaction 

15 described in section 108(i)(2)(B) of such Code (as 

16 added by subsection (b)), or received pursuant to an 

17 exchange arising from a transaction described in sec18 tion 108(i)(2)(C) of such Code (as so added), shall 

19 be treated as a market discount bond (within the 

20 meaning of section 1278(a)(1) of such Code) having 

21 market discount equal to the amount (if any) which, 

22 but for section 108(a)(1)(F) of such Code (as added 

23 by subsection (a)), would have been includible in 

24 gross income by reason of the discharge of such in25 debtedness in any such transaction. 


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1 (2) ACQUISITIONS BY FOREIGN PERSONS.—Any 

2 interest (or original issue discount) paid or accrued 

3 after December 31, 2008, and before January 1, 

4 2011, on indebtedness which is described in section 

5 108(a)(1)(F) of such Code by reason of the acquisi6 tion of such indebtedness by a foreign person or by 

7 a partnership (or other pass-through entity) in 

8 which a foreign person is a partner (or other profits 

9 or capital owner) shall not be subject to sections 

10 871(h)(3), 881(c)(3)(B) or 881(c)(3)(C) of such 

11 Code. 


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Calendar No. 11 

111TH CONGRESS 

1ST SESSION S. 33 

A BILL 

To amend the Internal Revenue Code of 1986 with 

other purposes. debtedness discharged in 2009 or 2010, and for respect to the proper tax treatment of certain inJANUARY 7, 2009 

Read the second time and placed on the calendar 


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