-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.Page: Previous 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 Next
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