Tag: BDO distressed debt structure
Distressed debt arises when a company is experiencing financial difficulty, and has defaulted on its debt obligations. To align the capital structure with repayment capability, the company must reduce debt by either restructuring its balance sheet or by liquidating some of its assets.
US vs Buyuk LLC and Beyazit LLC, November 2013, US Tax Court, Case No. 11051-10, 6853-12
The dispute in this case was transactions involving distressed asset/debt transaction. The tax authorities found the DAD transactions of russian receivables under a “DBO distressed debt structure scheme” lacked economic substance, and denied the taxpayers involved tax decuctions of USD 4.5 and 12.2 million. A report provided on behalf of the government analyzed whether a rational investor would have entered into the transaction were it not for the claimed tax benefits. The Courts opinion: “there was no realistic possibility for the transactions at issue to break even absent any tax benefits.” Hence the transactions were not recognized. US Tax Court, Case No. 11051-10, 6853-12 US Tax Court 2013-253 ...