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T.C. Memo. 1997-146 (holding that the discharge of nonrecourse
debt and release of ownership in the property that secured the
debt is a sale or exchange even though the mortgagee did not take
title to the property).
Petitioner argues that the discharge of the loans by the
mortgagee falls under the purview of Gershkowitz v. Commissioner,
88 T.C. 984 (1987), and Rev. Rul. 91-31, 1991-1 C.B. 19. In
Gershkowitz, several partnerships were involved in two identical
transactions. Each partnership satisfied $250,000 of nonrecourse
loans with a cash payment of $40,000 but retained the property
securing the loans. Each partnership obtained the funds to
settle the above loans by borrowing the $40,000 from another
lender on a nonrecourse basis and ultimately satisfying the
latter loan by transferring the encumbered property to the
lender.
We held that the cancellation of the $250,000 of nonrecourse
loans without the surrender of the property securing those loans
resulted in COI income under section 61(a)(12) to the extent that
the canceled debt exceeded the cash payment. Gershkowitz v.
Commissioner, supra at 1014. With respect to each nonrecourse
loan of $40,000, we held that the entire outstanding balance of
the loan must be included in the amount realized in the
calculation of gain under section 1001. Id. at 1016.
Petitioner maintains that the facts are similar to those of
Gershkowitz in that NCNB agreed to discharge $25,582,181 of
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