- 7 -
(5th Cir. 1989), affg. T.C. Memo. 1988-72; Killingsworth v.
Commissioner, 864 F.2d 1214, 1216 (5th Cir. 1989), affg. 87 T.C.
1087 (1986); Boynton v. Commissioner, 649 F.2d 1168, 1172 (5th
Cir. 1981), affg. 72 T.C. 1147 (1977); Swaim v. United States,
651 F.2d 1066, 1069-1070 (5th Cir. 1981); Kuper v. Commissioner,
533 F.2d 152, 155-156 (5th Cir. 1976), affg. in part and revg. in
part 61 T.C. 624 (1974); Horn v. Commissioner, 90 T.C. 908, 939
(1988); Price v. Commissioner, 88 T.C. 860, 884 (1987); Capek v.
Commissioner, 86 T.C. 14, 47 (1986); Forseth v. Commissioner, 85
T.C. 127, 164 (1985), affd. 845 F.2d 746 (9th Cir. 1988);
Houchins v. Commissioner, 79 T.C. 570, 589-590 (1982). In a case
such as this, where the transaction is so disparate from the
actual substance and economic realities of the situation, we are
empowered, and in fact duty-bound, to look behind the transaction
in order to apply the Internal Revenue Code accurately. Forseth
v. Commissioner, supra at 164 (citing Saviano v. Commissioner,
765 F.2d 643, 654 (7th Cir. 1985), affg. 80 T.C. 955 (1983)).
The facts of the instant case are analogous to those
provided in an example in the regulations. Section 1.1001-2(c),
Example(8), Income Tax Regs., provides as follows:
In 1980, F transfers to a creditor an asset with a fair
market value of $6,000 and the creditor discharges
$7,500 of indebtedness for which F is personally
liable. The amount realized on the disposition of the
asset is its fair market value ($6,000). In addition,
F has income from the discharge of indebtedness of
$1,500 ($7,500 - $6,000).
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