Tax and Cross-Collateralized Nonrecourse Liability

Abstract

This Article explores the tax treatment of cross-collateral nonrecourse debt. When using the term cross-collateral debt, we are referring to nonrecourse debt that is connected with more than one piece of property. While tax issues concerning cross-collateralized properties can arise in several circumstances, the focus of this Article is on the tax treatment of a transfer of property subject to a cross-collateralized
nonrecourse liability to a controlled corporation in exchange for stock that qualifies for some or all nonrecognition under § 351. The Article also discusses two other tax issues involving cross-collateralized
nonrecourse liability—namely, cancellation of debt and determination of basis issues.