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was indebted to Chase Manhattan for $13,424,443.37 in principal
and $2,481,720.46 in interest, for a total of $15,906,163.83.
Pursuant to an Amended and Restated Credit Agreement
(amended agreement) dated March 19, 1992, between Chesapeake,
Chase Manhattan, and Tec Media, Chesapeake's indebtedness to
Chase Manhattan and Tec Media was restructured. Chesapeake was
released from indebtedness to Chase Manhattan in the amount of
$906,163.83. In addition, Chesapeake was released from
indebtedness to Tec Media in the amount of $6,000, plus accrued
and unpaid interest, for a total of approximately $88,815.
As of January 1, 1992, Chesapeake had total assets of
$10,858,689, and total liabilities of $16,139,334. Chesapeake
was insolvent, within the meaning of section 108(d)(3),
immediately prior to the discharge of its indebtedness pursuant
to the amended agreement. The total amount of Chesapeake's
discharged indebtedness (approximately $995,000) did not exceed
the amount by which Chesapeake was insolvent.
On March 20, 1992, Chase Manhattan acquired ownership of
Chesapeake in accordance with the terms of the amended agreement,
and Chesapeake's status as an S corporation was thereafter
terminated. Accordingly, Chesapeake filed a short-year Form
1120S, U.S. Income Tax Return for an S Corporation, for the
period ending March 19, 1992.
Chesapeake reported its excluded COD income on line 18,
Other tax-exempt income, of the Schedule K, Shareholders' Share
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