Big Hong Ng - Page 32

               Section 6654 provides for an addition to tax for failure to            
          pay estimated income tax.  Because Ms. Ng failed to pay estimated           
          tax for 1990, section 6654 applies.                                         
               Finally, respondent determined an addition to tax under                
          section 6661 for 1986, 1987, and 1988. Section 6661 provides for a          
          25-percent addition to tax for substantial understatement. We               
          sustain respondent's determination.                                         
          Issue 8.  Discharge of Indebtedness                                         
               Respondent determined that Strong Hope had $516,903 in                 
          discharge of indebtedness income in 1989.  This discharge of                
          indebtedness income relates to debts Strong Hope owed to Strong             
          Hope Limited (the California corporation) and to Permanent Union            
          Limited, both of which were wholly owned by Ms. Ng.  As of 1989,            
          Strong Hope owed $434,012 to Strong Hope Limited, and $82,891 to            
          Permanent Union Limited.  Respondent contends that these debts were         
          discharged when Ms. Ng caused Strong Hope to distribute to her its          
          sole asset (i.e., the Stockton Street property) and thus liquidate.         
          Strong Hope argues that it was insolvent prior to the distribution,         
          that it did not liquidate in 1989, and that any discharge of                
          indebtedness was not U.S. source or business income.                        
               Gross income includes income from discharge of indebtedness.           
          Sec. 61(a)(12).  However, section 108(a) provides an exclusion if           
          the discharge of indebtedness occurs when the taxpayer is                   
          insolvent.  Strong Hope contends that it comes within the                   
          insolvency exclusion of section 108.  We do not agree.                      

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