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to defer recognition of gain realized on the sale of the
taxpayer's principal residence in certain circumstances. We are
not concerned with a residence in the case before us. Section
1.1034-1(b)(4), Income Tax Regs., is simply not relevant to
petitioner in this case.
Additionally, petitioner argues that Liberty Mirror Works v.
Commissioner, 3 T.C. 1018 (1944), supports his contention that a
mortgagor realizes COI income when a lender agrees to discharge a
debt encumbering property and to release the accompanying debt in
exchange for the assignment of the proceeds from the sale of the
property. Petitioner's reliance on Liberty Mirror also is
misplaced. In Liberty Mirror, the bank held a mortgage on the
taxpayer's property to secure a loan. As part of its settlement
with the bank, the taxpayer agreed to forward the proceeds from
the sale of the property to the bank. Because the taxpayer's
debt exceeded the proceeds from the sale, the bank agreed to
cancel the taxpayer's remaining indebtedness. This Court held
that the cancellation of the taxpayer's remaining indebtedness
constituted a gift5 and that, consequently, the taxpayer realized
no income. Although the facts there bear some similarity to
those of the instant case, it does not help petitioner because in
5The precedential value of the gift rationale, as
articulated by the Supreme Court in Helvering v. American Dental
Co., 318 U.S. 322 (1943), and followed by this Court in Liberty
Mirror Works v. Commissioner, 3 T.C. 1018 (1944), has been
curtailed by subsequent authority, including Commissioner v.
Jacobson, 336 U.S. 28 (1949).
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