2925 Briarpark, Ltd., James C. Motley, Tax Matters Partner - Page 6

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          Briarpark transferred its cash reserves of $177,495 to NCNB.  As            
          of December 31, 1989, Briarpark had no assets and ceased business           
          operations.                                                                 
               On its 1989 Federal partnership income tax return, Briarpark           
          reported cancellation of indebtedness income (COI income) of                
          approximately $14,468,154 as a result of the November 3, 1989,              
          agreement.  The reported amount is calculated as follows:                   
          Modified loan balance                        $24,562,763                    
          Build-out loan balance                        1,019,418                     
          Total loan balance                           25,582,181                     
          Less sale proceeds from Dan Associates       (10,936,532)                   
          Less cash reserves paid to NCNB              (177,495)                      
          Net COI income                               14,468,154                     
                                                       ===========                    


                                     Discussion                                       
               The parties do not dispute that the loans were nonrecourse             
          during 1989.  The issue before us is whether the income realized            
          from the discharge of the loans should be treated as gains                  
          derived from dealings in property includable in gross income                
          under section 61(a)(3) or as cancellation of indebtedness (COI)             
          income within the meaning of section 61(a)(12).                             
               Petitioner contends that the discharge of $14,468,154 of               
          Briarpark's modified and build-out loans (loans) by NCNB should             
          be characterized as COI income under section 61(a)(12).                     
          Respondent argues that the entire balance of the loans must be              
          included in the amount realized and that the resulting gain is              






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