- 19 - 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...)Page: Previous 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Next
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