Parker Properties Joint Venture, PDW&A, Inc., A Partner Other Than The Tax Matters Partner - Page 19

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          nonrecourse basis as to the partnerships, secured by the real               
          estate which was the subject of each joint venture.  In                     
          Commissioner v. Tufts, supra, the collateral for the loan was not           
          retained by the borrowers upon debt cancellation.  Petitioners              
          argue that, because they retained their collateral and settled              
          their debt with cash, their facts are distinguishable from Tufts,           
          and, thus, they should only recognize income to the extent of the           
          fair market value of the collateral.  In Gershkowitz v.                     
          Commissioner, supra, the taxpayers did retain collateral and pay            
          with cash.  In Gershkowitz v. Commissioner, supra at 1014, the              
          taxpayers were required to recognize gain from the cancellation             
          of indebtedness to the extent that the balance of the debt                  
          exceeded the cash paid on extinguishment.9                                  
               In line with Gershkowitz, we hold that the partnerships                
          realized income to the extent that their loan balances exceeded             
          the consideration paid to Commercial on extinguishment.10  This             

          9 Respondent’s analysis in Rev. Rul. 91-31, 1991-1 C.B. 19,                 
          also reaches this result.  In Rev. Rul. 91-31, respondent                   
          concluded that Commissioner v. Tufts, 461 U.S. 300 (1983), and              
          Gershkowitz v. Commissioner, 88 T.C. 984 (1987), required                   
          cancellation of indebtedness income to be recognized to the                 
          extent of the principal reduction by the “nonselling” lender of             
          an under-secured, nonrecourse debt.  Such is the case here.  See            
          also Rev. Rul. 82-202, 1982-2 C.B. 36, wherein respondent’s                 
          analysis concludes that United States v. Kirby Lumber Co., 284              
          U.S. 1 (1931), requires a taxpayer, whose nonrecourse debt                  
          balance was reduced by the lender, to recognize cancellation of             
          indebtedness income in an amount equal to the debt reduction.               
          10 The parties agree that unpaid interest incurred on the                   
                                                             (continued...)           




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