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6. Respondent's Consistency Argument
In Landreth v. Commissioner, 50 T.C. 803, 812-813 (1968), we
rejected the Commissioner's suggestion that any person who
guarantees the payment of a loan realizes income when the
principal debtor makes payments on the loan. We distinguished
the situation of a guarantor, who “obtains nothing except perhaps
a taxable consideration for his promise”, from that of a debtor,
“who as a result of the original loan obtains a nontaxable
increase in assets”, and who, if relieved of the obligation to
repay the loan, enjoys an increase in net worth that “may be
properly taxable. United States v. Kirby Lumber, Co., 284 U.S. 1
(1931).” Id. at 813. This Court stated: “[W]here the guarantor
is relieved of his contingent liability, either because of
payment by the debtor to the creditor or because of a release
given him by the creditor, no previously untaxed accretion in
assets thereby results in an increase in net worth.” Id.
Respondent relies heavily on Landreth for the proposition
that petitioners are precluded “from using their status as
guarantors to render themselves insolvent within the meaning of
I.R.C. � 108.” Respondent argues:
The Landreth Court reasoned that “[p]ayment by the
principal debtor does not increase the guarantor's net
worth; it merely prevents it, pro tanto, from being
decreased.” Landreth v. Commissioner, 50 T.C. at
* * * [813]. This rationale is sound for several
reasons. The guarantor did not receive the tax-free
accretion in wealth upon payment of the loan funds, but
rather the principal obligor did. When the principal
obligor makes payments pursuant to the loan, there is
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