- 5 -
a result of the sale or disposition." And it follows from
Helvering v. Hammel, 311 U.S. 504, 506-511 (1941), that a seizure
or any other involuntary transfer qualifies as a "disposition" of
the property.
On April 11, 1991, as a result of petitioner's default on
the mortgage notes, the FDIC took possession of the quitclaim
deed executed by petitioner. On November 12, 1991, the FDIC
executed a Mortgage Discharge in connection with the property.
Petitioner owed Capitol Bank $3,600,000 at that time. The entire
amount was forgiven by the Mortgage Discharge.
This Court has held that when a taxpayer surrenders property
in exchange for cancellation of a debt, the transaction may be
characterized, in whole or part,2 as a sale or exchange of
property rather than a cancellation of indebtedness. Danenberg
v. Commissioner, 73 T.C. 370, 380-381 (1979). The Court relied
upon R. O'Dell & Sons Co., Inc. v. Commissioner, 8 T.C. 1165,
1167 (1947), affd. 169 F.2d 247 (3d Cir. 1948), where the problem
was analyzed as follows:
If an owner sells property for more than its basis, the
assumption that there has been a taxable gain follows almost
inevitably. This is as true where the consideration
received is property as where it is cash. Sometimes, the
transaction involves an atypical sort of consideration such
2 No issue is presented here involving the problem dealt
with in Gehl v. Commissioner, 102 T.C. 784, 786-787 (1994), affd.
without published opinion 50 F.3d 12 (8th Cir. 1995) where the
recourse indebtedness canceled exceeded the value of the property
surrendered.
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