YA Global Must Include Written-Off Interest in Taxable Income

A Cayman Islands-based partnership was required to accrue more than $17.1 million in interest that it wrote off its books after deciding payment from its debtor was unlikely, the US Tax Court said Thursday.

The IRS determined YA Global Investments LP had $24.8 million in 2009 ordinary income, and owed $6.75 million in withholding tax that year, after disallowing the partnership’s accrued interest write-off as unsubstantiated. YA Global and its tax matters partner sued, but the Tax Court decided that the IRS’s income calculation had been correct.

“Financial difficulties of a debtor that merely delay payment are not sufficient to ...