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Generally, gain or loss from the disposition of property is
measured by the amount realized less the adjusted basis of the
property. Sec. 1001(a). The amount realized from the sale or
other disposition of property is defined as money received plus
the fair market value of any property received. Sec. 1001(b).
Furthermore, the amount realized generally includes the amount of
liabilities from which the transferor is discharged as a result
of the sale or disposition. Sec. 1.1001-2(a), Income Tax Regs.
An exception to this rule applies if the liability was incurred
by reason of the acquisition of the property but such liability
was not taken into account in determining the transferor’s basis
for the property. Sec. 1.1001-2(a)(3), Income Tax Regs.; see
also Brown-Forman Corp. v. Commissioner, 94 T.C. 919, 940 (1990),
affd. 955 F.2d 1037 (6th Cir. 1992); cf. Mendham Corp. v.
Commissioner, 9 T.C. 320 (1947); Lutz & Schramm Co. v.
Commissioner, 1 T.C. 682 (1943).
When a nonrecourse liability is at issue, a discharge of
the liability occurs when there is a sale or other disposition of
the property that secures the nonrecourse liability. Sec.
1.1001-2(a)(4)(i), Income Tax Regs. A charitable contribution of
property can be treated as a sale or exchange. Guest v.
Commissioner, 77 T.C. 9, 25 (1981); sec. 1.1011-2(a)(3), Income
Tax Regs.
Both parties cite Commissioner v. Tufts, 461 U.S. 300
(1983), in their arguments.
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Last modified: May 25, 2011