- 9 -
Conversely, respondent maintains that the net recovery
buyout transaction effected a discharge of indebtedness in 1996
within the meaning of section 61(a)(12). Respondent further
asserts that the recapture agreement is too contingent and
indefinite to constitute a substitution, continuation, or
refinancing of the original debt so as to delay recognition.
Respondent relies particularly on the fact that petitioners have
no definite obligation to make any further payments.
In essence then, the principal disagreement between the
parties centers on whether the recapture agreement executed by
petitioners continues their obligation to FmHA in a manner such
that there was in 1996 no discharge of indebtedness within the
meaning of the Internal Revenue Code. Furthermore, as their
respective contentions reveal, the two sides reach opposing
answers to this question in large part because each characterizes
a different aspect of the buyout arrangement as contingent.
Petitioners view the cancellation itself as contingent, asserting
that the subject transaction merely generated an agreement to
cancel their debt at a future time. Respondent, on the other
hand, styles the instant scenario as involving a present
cancellation with a contingent future obligation to repay.
If there exists only an agreement to cancel prospectively,
the debt is discharged not at the time the agreement is made but
at the time conditions specified therein are satisfied. See
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Next
Last modified: May 25, 2011