485.42. Where a particular commercial obligation issued by a debtor, other than an obligation deemed by paragraph a to have been issued, is settled at a particular time, amounts have been designated by the debtor under sections 485.6 to 485.10 to the maximum extent permitted in respect of the settlement of the particular obligation at the particular time, the debtor and an eligible transferee of the debtor at the particular time file under this subdivision an agreement between them in respect of that settlement, and an amount is specified in that agreement, the following rules apply:(a) except for the purposes of section 485.11, the transferee is deemed to have issued a commercial debt obligation that was settled at the particular time;
(b) the specified amount is deemed to be the forgiven amount at the particular time in respect of the obligation referred to in paragraph a;
(c) subject to paragraph d, the obligation referred to in paragraph a is deemed to have been issued at the same time, in paragraph d referred to as the “time of issue”, at which, and in the same circumstances in which, the particular obligation was issued;
(d) where the transferee is a taxpayer that was subject to a loss restriction event after the time of issue and the transferee and the debtor were, if the transferee is a corporation, not related to each other—or, if the transferee is a trust, not affiliated with each other—immediately before the loss restriction event,i. the commercial debt obligation referred to in paragraph a is deemed to have been issued after the loss restriction event, and
ii. paragraph b of the definition of “unrecognized loss” in section 485 and paragraph b of sections 485.1 and 485.2 do not apply in respect of the loss restriction event;
(e) the source in connection with which the obligation referred to in paragraph a was issued is deemed to be the source in connection with which the particular obligation was issued; and
(f) for the purposes of sections 346.2 to 346.4, the amount included under section 485.13 in computing the income of the eligible transferee in respect of the settlement of the obligation referred to in paragraph a or deducted under paragraph a of section 485.15 in respect of such income is deemed to be nil.