They Have Returned

My arch-enemies, nonrecourse loans, have returned to plague me again. This time, they have infiltrated subchapter K of the income tax code. If you don't remember, I struggled with nonrecourse loans late last year in the context of basic federal income tax. It took me some time to grapple with the idea that forgiveness of a debt to which you are not personally liable can generate taxable discharge of indebtedness income for you. Conceptually it was difficult for me to understand the fairly circuitous approach taken by Congress, an approach taken only because Congress doesn't want a negative tax basis in property.

Having finally come to an understanding, I had no fear when I approached the chapter in my text entitled "Partnership Treatment of Nonrecourse Liability." Hey, I kicked its ass once and I can do it again. Or so I thought...