I 
111TH CONGRESS 
1ST SESSION 
H. R. 683 
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 HOUSE OF REPRESENTATIVES 
JANUARY 26, 2009 
Ms. BERKLEY introduced the following bill; which was referred to the 
Committee on Ways and Means 
A BILL 
To amend the Internal Revenue Code of 1986 with respect 
to the proper tax treatment of certain indebtedness dis-
charged in 2009 or 2010, and for other purposes. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. PROPER TAX TREATMENT OF CERTAIN FINAN-
CIAL INDEBTEDNESS DISCHARGED IN 2009 
OR 2010. 
(a) IN GENERAL.—Section 108(a)(1) of the Internal 
Revenue Code of 1986 (relating to exclusion from gross 
income) is amended by striking ‘‘or’’ at the end of sub-
paragraph (D), by striking the period at the end of sub-
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paragraph (E) and inserting ‘‘, or’’ and by adding at the 
end the following new subparagraph: 
‘‘(F) the indebtedness discharged is appli-
cable financial indebtedness which is discharged 
after December 31, 2008, and before January 
1, 2011.’’. 
(b) APPLICABLE FINANCIAL INDEBTEDNESS.—Sec-
tion 108 of such Code is amended by adding at the end 
the following new subsection: 
‘‘(i) DEFINITIONS AND RULES RELATING TO APPLI-
CABLE FINANCIAL INDEBTEDNESS.—For purposes of sub-
section (a)(1)(F)— 
‘‘(1) 
APPLICABLE
FINANCIAL
INDEBTED-
NESS.—The term ‘applicable financial indebtedness’ 
means indebtedness— 
‘‘(A) which was originally issued by a cor-
poration, or by a partnership engaged in a 
trade or business (other than a trade or busi-
ness of trading in stocks or securities for the 
partnership’s own account), and 
‘‘(B) which is— 
‘‘(i) indebtedness originally issued or 
syndicated by a financial institution (as de-
fined in section 582(c)(2) without regard 
to subparagraph (C) thereof) or a deposi-
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tory institution holding company (as de-
fined in section 3(w)(1) of the Federal De-
posit 
Insurance 
Act 
(12 
U.S.C. 
1813(w)(1)), 
‘‘(ii) indebtedness which— 
‘‘(I) constitutes a security within 
the meaning of the Securities Act of 
1933, and 
‘‘(II) was originally issued pursu-
ant to a registration statement that 
was declared effective under such Act 
or pursuant to an exemption from, or 
in a transaction not subject to, the 
registration requirements of such Act, 
or 
‘‘(iii) indebtedness that is traded on 
an established market (within the meaning 
of section 1273(b)(3)). 
‘‘(2) 
APPLICABLE
DISCHARGES.—Subsection 
(a)(1)(F) shall only apply to a discharge of applica-
ble financial indebtedness if such discharge is by 
reason of— 
‘‘(A) the acquisition of the indebtedness by 
the issuer of the indebtedness, 
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‘‘(B) the acquisition of the indebtedness of 
the issuer by a person related, or who becomes 
related, to the issuer of the indebtedness from 
a person who is not related to the issuer, or 
‘‘(C) the significant modification of the in-
debtedness (within the meaning of section 
1001). 
For purposes of subparagraph (B), the determina-
tion of whether a person is related to another person 
shall be made in the same manner as under sub-
section (e)(4).’’. 
(c) 
COORDINATION
OF
EXCLUSIONS.—Section 
108(a)(2) of such Code is amended— 
(1) by striking ‘‘and (E)’’ in subparagraph (A) 
and inserting ‘‘(E), and (F)’’, and 
(2) by adding at the end the following new sub-
paragraph: 
‘‘(D) FINANCIAL
INDEBTEDNESS
EXCLU-
SION
TAKES
PRECEDENCE
OVER
INSOLVENCY 
EXCLUSION
UNLESS
ELECTED
OTHERWISE.— 
Paragraph (1)(B) shall not apply to a discharge 
to which paragraph (1)(F) applies unless the 
taxpayer elects to apply paragraph (1)(B) in 
lieu of paragraph (1)(F).’’. 
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(d) EARNINGS AND PROFITS.—Section 312(l) of such 
Code is amended by adding at the end the following new 
paragraph: 
‘‘(3) DISCHARGE OF CERTAIN FINANCIAL IN-
DEBTEDNESS.—The earnings and profits of a cor-
poration shall not include income from a discharge 
of indebtedness to which section 108(a)(1)(F) ap-
plies.’’. 
(e) OTHER SPECIAL RULES.— 
(1) 
TREATMENT
AS
MARKET
DISCOUNT 
BOND.—For purposes of the Internal Revenue Code 
of 1986, any indebtedness acquired in a transaction 
described in section 108(i)(2)(B) of such Code (as 
added by subsection (b)), or received pursuant to an 
exchange arising from a transaction described in sec-
tion 108(i)(2)(C) of such Code (as so added), shall 
be treated as a market discount bond (within the 
meaning of section 1278(a)(1) of such Code) having 
market discount equal to the amount (if any) which, 
but for section 108(a)(1)(F) of such Code (as added 
by subsection (a)), would have been includible in 
gross income by reason of the discharge of such in-
debtedness in any such transaction. 
(2) ACQUISITIONS BY FOREIGN PERSONS.—Any 
interest (or original issue discount) paid or accrued 
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after December 31, 2008, and before January 1, 
2011, on indebtedness which is described in section 
108(a)(1)(F) of such Code by reason of the acquisi-
tion of such indebtedness by a foreign person or by 
a partnership (or other pass-through entity) in 
which a foreign person is a partner (or other profits 
or capital owner) shall not be subject to sections 
871(h)(3), 881(c)(3)(B), or 881(c)(3)(C) of such 
Code. 
Æ 
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