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faith the nature and amount of the liability, and that he should not
be required to report discharge of indebtedness income in connection
with settlement of this liability.
In Landreth v. Commissioner, 50 T.C. 803, 812-813 (1968), we
distinguished the situation involving a guarantor of a debt from that
of a primary obligor on a debt, and we concluded that a guarantor of
a debt, upon the payment of the debt by the primary obligor, does not
realize discharge of indebtedness income when relieved of an
obligation under a guaranty. We stated as follows:
The situation of a guarantor is not like that of a debtor
who as a result of the original loan obtains a nontaxable
increase in assets. * * * Where a debtor is relieved of
his obligation to repay the loan, his net worth is
increased over what it would have been if the original
transaction had never occurred. This real increase in
wealth may be properly taxable. However, where the
guarantor is relieved of his contingent liability, either
because of payment by the debtor to the creditor or because
of a release given him by the creditor, no previously
untaxed accretion in assets thereby results in an increase
in net worth. * * * [Id. at 813; citations omitted.]
On the evidence before us, we conclude that the discharge of the
balance due on Payne & Potter's $705,000 debt obligation to TexCommBk
may have resulted in discharge of indebtedness income to Payne &
Potter but not to petitioner. When petitioner’s contested liability
as guarantor of the debt obligation was settled, petitioner did not
realize an increase in net worth, and petitioner is not to be charged
with discharge of indebtedness income with regard thereto.
See id.; Whitmer v. Commissioner, T.C. Memo. 1996-83.
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