Common use of Treatment of C corporation debt upon conversion to S status Clause in Contracts

Treatment of C corporation debt upon conversion to S status. If a C cor- poration has outstanding an obligation that satisfies the definition of straight debt in paragraph (l)(5)(i) of this sec- tion, but that is considered equity under general principles of Federal tax law, the obligation is not treated as a second class of stock for purposes of this section if the C corporation con- verts to S status. In addition, the con- version from C corporation status to S corporation status is not treated as an exchange of debt for stock with respect to such an instrument.