This Article suggests that such a proposal will harmonize the bankruptcy policy of rehabilitating financially distressed corporations with the tax policy of ensuring that true economic income is subject to federal income taxation.27 Parts II and III of this Article will trace the common law evolution of the stock-for-debt exception and its statutory codification in 1980, with particular emphasis on the stated policy justifications for the exception. Part IV will then examine the history of the repeal of the stock-for-debt exception, demonstrating that the repeal was the result of hasty political maneuvering rather than reasoned legislative decision-making. In Part V, the Article will first explore the exception's critical role in realizing the fundamental rehabilitative goals of chapter 11 bankruptcy and will justify the exception under both bankruptcy and tax theory. It will propose the reinstatement of the stock-for-debt exception for insolvent corporations and those in bankruptcy, and will resolve three tax issues relating to the exception that remained unanswered at the time that the exception was repealed. The Article will conclude that reinstating the stock-for-debt exception will improve the success rate of chapter 11 bankruptcy reorganizations and reduce the devastating economic impact of corporate liquidations.
Michelle Arnopol Cecil, Reinvigorating Chapter 11: The Case for Reinstating the Stock-for-Debt Exception in Bankruptcy, 2000 Wis. L. Rev. 1001 (2000)