-33-
Strong Hope had assets of $1,173,122 and liabilities of
$916,991 prior to its distribution of the Stockton Street property.
The Stockton Street property was valued at $1.1 million, and
according to Strong Hope's books it had other assets totaling
$73,122. The company had a mortgage of $400,088 and owed $516,903
to Strong Hope Limited and Permanent Union Limited. Based on these
facts, Strong Hope was not insolvent immediately prior to the
discharge of indebtedness.
Strong Hope also contends that it did not liquidate in 1989,
and thus could not have discharge of indebtedness income. We
disagree. Following Strong Hope's distribution of its 50-percent
interest in the Stockton Street property to Ms. Ng on May 9, 1989,
it effectively ceased doing business and the amounts it owed to
Strong Hope Limited and Permanent Union Limited were effectively
discharged. Whether a company actually liquidates is not the test
for determining whether there is income from discharge of
indebtedness. A debt is discharged when it becomes apparent that
the debt will never have to be repaid. Brountas v. Commissioner,
74 T.C. 1062, 1074 (1980), vacated and remanded 692 F.2d 152 (1st
Cir. 1982).
Finally, Strong Hope contends that any discharge of
indebtedness would not be U.S. source income under section 881(a)
or income effectively connected with the conduct of a trade or
business within the United States under section 882(a). Again, we
do not accept this assertion.
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