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realization of L&C Springs' income relating to relief on its
$2,250,000 nonrecourse indebtedness to Tanglewood.
Petitioners contend that Tanglewood’s and Cal Fed’s
postponement until 1991 of the foreclosure sale was based on the
hope that additional funds might be raised by L&C Springs to
avoid the foreclosure sale. This contention is not credible.
L&C Springs defaulted on its indebtedness to Tanglewood as early
as 1987. It was apparent in October of 1990, and earlier, that
no additional funds would be available and that a foreclosure
sale was inevitable.
In 1989, L&C Springs ceased paying Tanglewood rent due on
the land relating to the L&C Properties. As of the end of
October of 1990, CB&A had turned over all management of the
properties to Cal Fed and to a management company working for Cal
Fed. By December of 1990, L&C Springs no longer reported rental
income from the L&C Properties.
Petitioners rely on cases involving recourse debt and argue
that no sale or exchange occurs until a foreclosure sale occurs
and until a taxpayer's right of redemption of the foreclosed
property expires. See R. O'Dell & Sons Co. v. Commissioner,
supra; Eisenberg v. Commissioner, 78 T.C. 336 (1982). Where,
however, recourse debt is involved (as distinguished from
nonrecourse debt that is involved in the instant cases)
abandonment or other disposition of the underlying property will
not trigger a sale or exchange because the debt is not
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