Michael Friedman and Madeline Friedman - Page 13

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          debtor because the assets are no longer encumbered.  A                      
          cancellation of indebtedness generally produces income to the               
          debtor in an amount equal to the difference between the amount              
          due on the obligation and the amount paid for the discharge.  If            
          no consideration is paid for the discharge, then the entire                 
          amount of the debt is considered the amount of income which the             
          debtor must include in income.  Sec. 61(a)(12).                             
               Section 108(a)(1) provides an exclusion for COD income if              
          (A) the discharge occurs in a title 11 case, (B) the discharge              
          occurs when the taxpayer is insolvent, or (C) the indebtedness              
          discharged is qualified farm indebtedness.7  Section 108(d)(2)              
          defines the term "title 11 case" as "a case under title 11 of the           
          United States Code (relating to bankruptcy), but only if the                
          taxpayer is under the jurisdiction of the court in such case and            
          the discharge is granted by the court or is pursuant to a plan              
          approved by the court."                                                     



               7Sec. 108(a) reads in part:                                            
               SEC. 108(a). Exclusion From Gross Income--                             
                    (1) In general.--Gross income does not include any                
               amount which (but for this subsection) would be includible             
               in gross income by reason of the discharge (in whole or in             
               part) of indebtedness of the taxpayer if--                             
                         (A) the discharge occurs in a title 11 case, or              
                         (B) the discharge occurs when the taxpayer is                
                    insolvent, or                                                     
                         (C) the indebtedness discharge is qualified                  
                    farm indebtedness.                                                




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