-6-
made to petitioner. Alternatively, petitioners argued that
petitioner was insolvent at the time the note was discharged, and,
as a result, the amount of the discharged indebtedness was not
includable in income pursuant to section 108(a)(1)(B).3
2(...continued)
treated as price reduction.--If--
(A) the debt of a purchaser of property to
the seller of such property which arose out of the
purchase of such property is reduced,
(B) such reduction does not occur--
(i) in a title 11 case, or
(ii) when the purchaser is insolvent,
and
(C) but for this paragraph, such reduction
would be treated as income to the purchaser from
the discharge of indebtedness,
then such reduction shall be treated as a purchase price
adjustment.
Sec. 108(e)(5) was enacted "to eliminate disagreements
between the Internal Revenue Service and the debtor as to
whether, in a particular case to which the provision applies, the
debt reductions should be treated as discharge income or a true
price adjustment." S. Rept. 96-1035 (1980), 1980-2 C.B. 620,
628. In order for a reduction in the amount of a debt to be
treated as a purchase price adjustment pursuant to sec.
108(e)(5), the following conditions must be met: (1) The debt
must be that of a purchaser of property to the seller that arose
out of the purchase of such property; (2) the taxpayer must be
solvent and not in bankruptcy when the debt reduction occurs; and
(3) except for section 108(e)(5), the debt reduction would
otherwise have resulted in discharge of indebtedness income.
Sec. 108(e)(5); 1 Bittker & Lokken, Federal Taxation of Income,
Estates and Gifts, pp. 6-40 to 6-41 (2d ed. 1989); Juister v.
Commissioner, T.C. Memo. 1987-292, affd. without published
opinion 875 F.2d 864 (6th Cir. 1989).
3 Gross income does not include discharge of indebtedness
income if the discharge occurs when the taxpayer is insolvent.
(continued...)
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011