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wrong.5 Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115
(1933). Petitioner relies mainly on N. Sobel, Inc. V.
Commissioner, 40 B.T.A. 1263 (1939), and its progeny, and
contends on brief that he had no COD income in 1987 because the
$237,000 debt mentioned in the complaint was: (1) Unenforceable
due to the fraudulent acts of ITT, (2) always subject to a bona
fide dispute, and (3) not liquidated until the settlement.
Petitioner’s counsel stated in his opening statement that the
$25,000 payment referenced in the Release represented the actual
amount that Midwest owed ITT.
We agree with petitioner that he does not have COD income,
but we do so for different reasons. It is hornbook law that
gross income includes income from the discharge of debt, and that
a taxpayer may realize COD income by paying an obligation at less
than its face value.6 Sec. 61(a)(12); United States v. Kirby
5 Respondent introduced evidence at trial to establish the
amount of the debt that ITT forgave in the ITT Litigation.
Respondent concedes that this evidence shows that the debt
declined from $237,000 on the date of the complaint to $182,295
on the date of the Release.
6 A cancellation of debt generally produces income to the
debtor in an amount equal to the difference between the amount
due on the obligation and the amount paid for the discharge. If
no consideration is paid for the discharge, the entire amount of
the debt is usually considered the amount of income that must be
recognized by the debtor. Sec. 61(a)(12); Babin v. Commissioner,
(continued...)
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