- 9 -
realized. The sale of mortgaged property at a foreclosure sale
is treated as a sale or exchange from which the mortgagor may
realize gain or loss under section 1001. Helvering v. Hammell,
311 U.S. 504 (1941).
The parties agree that the foreclosure sale of the lot
constituted a sale for tax purposes. Id. Furthermore, the
parties stipulated that petitioner's basis in the foreclosed
property was $520,379. In dispute is the "amount realized" on
the foreclosure sale that is to be applied against petitioner's
basis to determine the amount of gain or loss from the sale.
Petitioners contend that, pursuant to Aizawa v.
Commissioner, 99 T.C. 197 (1992), affd. 74 AFTR2d par. 94-5493,
the amount realized is the amount of the foreclosure sale
proceeds, or $450,000, resulting in a loss to petitioners of
$70,379, which is the excess of petitioner's basis of $520,379
over the amount realized of $450,000. Respondent, on the other
hand, contends that petitioners realized a gain on the
foreclosure sale under the Aizawa case. More specifically,
respondent contends that the amount realized must be the lesser
of the fair market value of the property or the amount of the
debt. Respondent bases this argument on the ground that, after
the foreclosure sale, petitioner was discharged from any further
liability on the deficiency or unpaid portion of the judgment;
therefore, under section 1.1001-2(a)(1), Income Tax Regs., the
deficiency or unpaid portion of the judgment constituted income
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Next
Last modified: May 25, 2011