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from the discharge of indebtedness and, therefore, did not
constitute an "amount realized" for purposes of gain or loss.5
In the Aizawa case, property subject to a recourse mortgage
was sold at a foreclosure sale and a deficiency judgment was
obtained. The issue in the Aizawa case was the same as in this
case, i.e., the amount realized on the foreclosure sale. In the
Aizawa case, respondent argued that the amount realized was the
amount of the unpaid mortgage principal before the foreclosure
without regard to the deficiency. The Court rejected
respondent's argument because:
It requires petitioners to treat as money received an amount
of their unpaid mortgage principal obligation from which
they have not yet been discharged, leaving to the future the
tax consequences of any subsequent payments or settlement of
the deficiency judgment for less than the unpaid amount.
* * * [Aizawa v. Commissioner, supra at 199; emphasis
added.]
5
Respondent argues that the gain realized by petitioners was
$7,665.97. Respondent calculated that amount by comparing the
fair market value of the property, $625,000, with the amount of
the debt, $528,044.97. Since the amount of the debt is the
lesser amount, respondent argues that the amount realized was
$528,044.97. The agreed basis of the property was $520,379;
therefore, the gain realized was $7,665.97. The Court questions
respondent's use of $528,044.97 as being the correct amount of
the debt. That figure was the unpaid principal on the note. At
the time of the foreclosure proceeding, in addition to the unpaid
principal, the Utah court decreed an additional amount due and
owing of $106,381.56 for accrued interest, attorney's fees,
taxes, and court costs. The amount of the debt, therefore, was
$634,426.53 as set out in the judgment, rather than the
$528,044.97 argued by respondent.
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