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debtors outside of bankruptcy.11 The necessary consequence of
that choice is that the nature of the examination to be afforded
to obligations claimed to be liabilities for purposes of the
statutory insolvency calculation depends on an analytical
framework based on the freeing-of-assets theory and not on the
treatment of such obligations in some analogous context, e.g.,
“debt” in the bankruptcy context.12
5. Respondent's Plain Meaning Argument
Respondent argues that the term “liabilities” in section
108(d)(3) must be given its plain meaning, which requires
excluding contingent liabilities from the statutory insolvency
calculation. As evidence of such exclusive meaning, respondent
relies on principles of financial accounting established by the
Financial Accounting Standards Board (FASB). Respondent asserts
11 If Congress were interested primarily in promoting
horizontal equity, Congress could have adopted the more
restrictive approach suggested by the American Law Institute in
its Draft of a Federal Income Tax Statute. See Surrey & Warren,
“The Income Tax Project of the American Law Institute: Gross
Income, Deductions, Accounting, Gains and Losses, Cancellation of
Indebtedness”, 66 Harv. L. Rev. 761, 817 (1953); see also Fifth
Ave.-Fourteenth St. Corp. v. Commissioner, 147 F.2d 453, 457 (2d
Cir. 1944) (test based on a hypothetical liquidation of the
debtor), revg. 2 T.C. 516 (1943).
12 See, e.g., Bankruptcy Code secs. 101(5), 101(12), 726, 727.
In addition, adherence to bankruptcy procedures and policies, for
example, the estimation of contingent or unliquidated debt
pursuant to Bankruptcy Code sec. 502(c)(1), among other things,
would unnecessarily and unjustifiably import unrelated
considerations into the statutory insolvency calculation. See
Bankruptcy Code sec. 502(c)(1) (requiring estimation when the
fixing or liquidation of any contingent or unliquidated claim
would unduly delay the administration of the bankruptcy
petition).
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