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ARTICLE · 26 OCTOBER 2023

Entity Conversion Under State Law Is Not A Modification Of Debt

Hogan Lovells Cadwalader
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After almost 20 years, the IRS has again ruled that the conversion under state law of a limited liability company (LLC) disregarded for tax purposes to a corporation did not result...

United StatesTax
Hogan Lovells Cadwalader
Hogan Lovells Cadwalader
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After almost 20 years, the IRS has again ruled that the conversion under state law of a limited liability company (LLC) disregarded for tax purposes to a corporation did not result in a "significant modification" of the various classes of debt previously issued by the LLC (PLR 202337007, released September 15, 2023). The IRS based its conclusion on the provision of applicable state law stating that any such conversion "shall not be deemed to affect any obligations or liabilities" of the converting entity.

As part of a larger restructuring, a parent company converted a lower-tier LLC to a corporation pursuant to state law. The LLC's outstanding debt was not modified in any way in the restructuring. State law made clear that any conversion from a limited liability company to a domestic corporation does not change any rights or obligations of the debtholders of such entity.

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