109 T.C. No. 22
UNITED STATES TAX COURT
DUDLEY B. AND LA DONNA K. MERKEL, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
DAVID A. AND NANCY J. HEPBURN, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 10031-95, 10032-95. Filed December 30, 1997.
Ps realized income on account of the discharge of
indebtedness. Ps excluded that income pursuant to the
insolvency exclusion of sec. 108(a)(1)(B), I.R.C., by
including certain “contingent” liabilities in the
insolvency calculation of sec. 108(d)(3), I.R.C.
Held: The term “liabilities” in sec. 108(d)(3),
I.R.C., requires Ps to prove with respect to any
obligation claimed to be a liability that Ps will be
called upon to pay that obligation in the amount
claimed. Held, further, Ps failed to prove that they
would be called upon to pay any amount with respect to
either of the obligations claimed to be liabilities.
Held, further, Ps failed to prove that, on the
measurement date, their liabilities exceeded the fair
market value of their assets and, therefore, may not
exclude any income under sec. 108(a)(1)(B), I.R.C.
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