The IRS has proposed new regulations that would allow certain qualifying entities to claim bad debt deductions. The proposed regulations would apply to partnerships, S corporations, and their partners and shareholders. The proposed regulations would also provide guidance on the treatment of bad debt deductions for consolidated groups. The proposed regulations would apply to tax years beginning on or after the date they are finalized.
Proposed regulations under section 166 published in the Federal Register in December 2023 provide rules addressing bad debt deductions for certain qualifying entities.
In particular, the proposed regulations [PDF 270 KB] would update the standard under Treas. Reg. § 1.166-2 for determining when a debt instrument held by a regulated financial company or a member of a regulated financial group will be conclusively presumed to be worthless. Read TaxNewsFlash
Read a March 2024 report* [PDF 191 KB] prepared by KPMG LLP that provides an overview of the rules in the proposed regulations and includes certain observations and open questions.
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