Update: New IRS Memo On Bad Boy Guarantees

Prior Alert. The March 17 Alert noted that the IRS in a Chief Counsel Advice ("CCA") had discussed the effect that certain "bad boy carve-out guarantees" (that would trigger contingent guarantee obligations if, for example, the borrower voluntarily entered into bankruptcy proceedings or cooperated with involuntary bankruptcy filings) would have on the characterization of purported non-recourse debt as either recourse or non-recourse for tax purposes. The CCA stated that such bad boy carve-out guarantees could cause debt that purported to be non-recourse to be characterized as recourse for purposes of section 752 of the Code and could also cause the relevant debt not to qualify as qualified non-recourse financing for purposes of the at-risk rules. The CCA in particular stated that the enumerated "bad boy" acts were not "so remote a possibility" as to make it unlikely that the obligation of the contingent guarantor would ever be discharged, and accordingly the debt