A provision of President Clinton’s economic plan could lead creditors to pressure troubled companies into filing for bankruptcy before the end of this year, lawyers and accountants have been saying – and they are anticipating a surge in filings in December. Cause of their concern, Dow Jones & Co reports, is a little-noticed section that eliminates a tax break for bankrupt companies that erase debt by issuing shares to their creditors – companies on the brink frequently use shares-for-debt swaps to facilitate reorganisations and avoid liquidations. Although the US Internal Revenue Service normally considers cancelled debt to be taxable income, prior to passage of the Clinton plan, debtors enjoyed an exception to the rule. Basically, if you have a forgiven debt, you have income, says Steven Kaplan of the Clifton, New Jersey accounting firm of Sax, Macy, Fromm & Co. The observers say the provision alone won’t force companies into premature bankruptcy to avoid the tax, but it will likely speed filings that would have happened later.
