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no liability to the guarantor that is being reduced by
such payments which would increase the guarantor's net
worth. This is so because the guarantee did not
represent a liability to the guarantor in the first
instance, it merely represented the possibility of a
liability in the future upon the occurrence or
nonoccurrence of some future event.
* * * the guarantees were not a liability to
petitioners within the meaning of I.R.C. � 108 for
purposes of income or the insolvency exception to that
income. To hold otherwise would result in an
inconsistent application of this statute. If discharge
of the contingent liability does not give rise to
discharge income pursuant to I.R.C. � 108, Congress
could not have intended for taxpayers to use that very
same debt to render themselves insolvent under that
section. [Fn. ref. omitted; emphasis added.]
We believe that respondent misreads Landreth v.
Commissioner, supra. The touchstone of this Court's analysis in
Landreth is the absence of any “previously untaxed accretion in
assets” that, by reason of the guarantor's being relieved of the
contingent liability, “results in an increase in net worth”, id.
at 813, and not the absence of a liability, the reduction of
which increases the guarantor's net worth. Indeed, the cases
relied on by this Court in Landreth, Commissioner v. Rail Joint
Co., 61 F.2d 751 (2d Cir. 1932), affg. 22 B.T.A. 1277 (1931);
Fashion Park, Inc. v. Commissioner, 21 T.C. 600 (1954),
specifically rejected the rationale that respondent now suggests
is the basis of this Court's decision in Landreth. See
Commissioner v. Rail Joint Co., supra at 752 (“But it is not
universally true that by discharging a liability for less than
its face the debtor necessarily receives a taxable gain.”);
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