-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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