Tax partnerships, including MLPs, seeking to restructure debt face peril and possibility during challenging times.

With the lowest oil prices in more than a decade and the equity markets effectively closed to them, oil and gas companies are facing difficult decisions regarding their capital structures. For many companies, this will involve working with creditors to restructure existing debt — a complicated undertaking for any business, but even more complex for companies classified as tax partnerships, such as master limited partnerships (MLPs). Unlike corporations, which are generally able to exclude cancellation of debt income (CODI) from their taxable income, partnership CODI passes through to the partners, often resulting in partner cash tax liabilities.