IDAPA 35.01.01.210 — REDUCTION OF IDAHO TAX ATTRIBUTES AND BASIS WHEN INCOME FROM

INDEBTEDNESS DISCHARGE IN BANKRUPTCY IS EXCLUDED FROM GROSS INCOME (RULE 210).
Section 63-3022(c), Idaho Code
01.
In General. Any taxpayer excluding from taxable income an amount resulting from the discharge
of indebtedness in bankruptcy under Section 108(b) of the Internal Revenue Code, is to reduce Idaho net operating
loss and basis in accordance with Section 346 of the Bankruptcy Code of the United States. If the discharge occurs
outside of bankruptcy, the provisions of these rules do not apply.
(4-6-23)
02.
Order of Reduction. The reduction referred to in Subsection 210.01 is to be made to the following
tax attributes in the following order:
(4-6-23)
a.
Any net operating loss deduction, as defined in Rule 201 of these rules, is to be reduced by the
amount of the indebtedness forgiven or discharged in bankruptcy except as follows:
(4-6-23)
i.
A deduction with respect to the liability which is disallowed for any taxable period during or after
the liability is forgiven or discharged. A deduction with respect to the liability includes a capital loss incurred on the
disposition of a capital asset with respect to a liability that was incurred in connection with the acquisition of such
asset.
(4-6-23)
ii.
To the extent that the indebtedness forgiven or discharged consisted of items of a deductible nature
that were not deducted by the taxpayer, or resulted in an expired net operating loss deduction or carryover that did not
offset income for any taxable period and did not contribute to a net operating loss in or a net operating loss carryover
to the taxable period during or after the indebtedness was discharged.
(4-6-23)
b.
The basis in the taxpayer's property or of property transferred to an entity required to use the
taxpayer's basis in whole or in part is to be reduced by the lesser of:
(4-6-23)
i.
The amount of the forgiven or discharged indebtedness, minus the total amount of adjustments
made under Subsection 210.02.a.; and
(4-6-23)
ii.
The amount of the debtor's total basis of assets before the discharge that exceeds the total
preexisting liabilities still remaining after discharge of indebtedness. Basis may not be reduced below a level equal to
the remaining undischarged liabilities.
(4-6-23)
03.
Exception to Basis Reduction. The basis reduction under Subsection 210.02.b. is not required if
the taxpayer elects to treat the amount that would otherwise be applied in reduction of basis as taxable income of the
taxable period in which the debt is forgiven or discharged.
(4-6-23)
04.
Discharge Not Treated as Discharged Indebtedness. The following provisions exclude from this
rule indebtedness that is discharged and treat the debtor as if it had originally issued stock instead of debt. No
reduction to the Idaho net operating loss or basis is required if one (1) or more of these provisions are satisfied.
(4-6-23)
a.
The indebtedness did not consist of items of a deductible nature and is exchanged for an equity
security, other than a limited partnership interest, issued by the debtor or is forgiven as a contribution to capital; or
(4-6-23)
b.
The indebtedness consisted of items of a deductible nature, and the exchange of stock for debt has
the same effect as a cash payment equal to the fair market value of the equity security that is issued by the debtor or,
if the value of the security is less than the value of the debt, only part of the debt will be excluded.
(4-6-23)