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However, the amount realized from the transfer of property in
consideration of the discharge or reduction of indebtedness
depends on whether the debt is recourse or nonrecourse in nature.
In the case of nonrecourse debt, the amount realized includes the
full amount of the remaining debt. See, e.g., Commissioner v.
Tufts, 461 U.S. 300 (1983); Gershkowitz v. Commissioner, 88 T.C.
984, 1016 (1987); Estate of Delman v. Commissioner, supra at 28-
29. In the case of recourse debt, on the other hand, the amount
realized from the transfer of property is the fair market value
of the property. See, e.g., Bialock v. Commissioner, supra at
660-661; Marcaccio v. Commissioner, supra.
Furthermore, the amount realized from the sale or other
disposition of property that secures a recourse debt does not
include income from the discharge of indebtedness under section
61(a)(12). See sec. 1.1001-2(a)(2), Income Tax Regs. Such
income will arise when the discharged amount of the recourse debt
exceeds the fair market value of the property.
Generally, a taxpayer must recognize income from the
discharge of indebtedness. Sec. 61(a)(12); United States v.
Kirby Lumber Co., 284 U.S. 1 (1931). There are exceptions,
however, to the recognition of income from the discharge of
indebtedness, including cases where the discharge occurs when the
taxpayer is insolvent. See sec. 108(a).
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