Normally, partners at a firm like Charter Communications would have to pay taxes on the amount of debt forgiven in this process, which is, in a sense a one-time income windfall. Tax law calls it a "deemed distribution."
I've had many clients who suffered this fate over the years. The last one I remember was a farmer who received a "deemed distribution" (which is really just income from cancellation of indebtedness) of about $1M. He was in a real financial bind BEFORE the cancellation and with the tax liability it destroyed him.
It was, in his case, warranted, as he had received the money (the farm corporation was borrowing money then using it to pay Subchapter K distributions to shareholder). So, it was equitable.
In the old days, if you were in bankruptcy, the deemed distribution couldn't exceed the amount by which the cancellation left you technically solvent. I suppose for Paul Allen, that wouldn't be an issue.
This is what happens, though, when you get bad legislation. It has unintended consequences. In this case, apparently, it will cost the government a billion bucks on this one guy. |
