Volatile trading markets and economic instability may prompt taxpayers to modify, purchase, or repurchase debt; participants should consider the tax consequences.

Key Points:

..Issuers may incur immediate income in the form of cancellation of indebtedness income (CODI) upon an amendment or exchange of existing debt if the existing debt is trading at a discount.

..Debt repurchases, or purchases by related parties, may result in similar CODI concerns.

..Borrowers can explore various ways to expand credit support and/or increase liquidity, including by pledging tax refunds, foreign guarantees, and foreign cash, and potentially by issuing incremental debt fungible with existing debt.

..In committed acquisition financings, there are numerous traps for the unwary, including those resulting from funding itself, as well as resales and the exercise of securities demand and market flex provisions.