Dudley B. and La Donna K. Merkel - Page 22

                                        -22-                                          
                    4.  Horizontal Equity is Not the Guiding Principle                
               Although we have concluded that the analytical framework of            
          the insolvency exclusion and its related provisions is based on             
          the freeing-of-assets theory, we note that the committee reports            
          indicate that Congress intended to achieve a measure of                     
          horizontal equity in enacting section 108(a)(1)(A) (the                     
          bankruptcy exclusion) and the insolvency exclusion; i.e.,                   
          affording similar treatment to debtors coming out of bankruptcy             
          and insolvent debtors outside of bankruptcy:                                
               To preserve the debtor's “fresh start” after                           
               bankruptcy, the bill provides that no income is                        
               recognized by reason of debt discharge in bankruptcy,                  
               so that a debtor coming out of bankruptcy (or an                       
               insolvent debtor outside bankruptcy) is not burdened                   
               with an immediate tax liability.  * * *  [Emphasis                     
               added.]                                                                
          S. Rept. 96-1035, at 10 (1980), 1980-2 C.B. 620, 624; H. Rept.              
          96-833, at 9 (1980).  That expression of legislative purpose may            
          suggest that, in making an examination of obligations claimed to            
          be liabilities for purposes of the statutory insolvency                     
          calculation, Congress intended an examination that is dependent             
          on the treatment of such obligations in the bankruptcy context.             
          See supra note 5; see also infra sec. II.C.7. (petitioners’                 
          “likelihood of occurrence” test).  The broad reach of the                   
          insolvency exclusion, however, indicates that Congress recognized           
          the significant differences between a debtor coming out of                  
          bankruptcy and an insolvent debtor outside of bankruptcy and                
          realized that different avenues of excluding income from                    




Page:  Previous  12  13  14  15  16  17  18  19  20  21  22  23  24  25  26  27  28  29  30  31  Next

Last modified: May 25, 2011