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property's fair market value, or $55,014, less the forgiven
interest of $23,489.
Generally, a taxpayer must include in gross income a dis-
charge of indebtedness. See sec. 61(a)(12); sec. 1.61-12(a),
Income Tax Regs. The rationale for this principle is that, when
a debt is forgiven, formerly encumbered assets of the borrower
become freely available for his use and enjoyment. Since the
loan does not have to be repaid, the newly freed assets con-
stitute income.
There are, however, exceptions to this general rule.
Section 108(a) provides that a taxpayer may exclude from gross
income the discharge of indebtedness if the discharge occurs in a
bankruptcy case, or, alternatively, when the taxpayer is insol-
vent, or if the indebtedness is qualified farm or business real
estate debt. Petitioner concedes that he was not insolvent
within the meaning of section 108. Moreover, nothing in the
record suggests that the other circumstances described above
exist here. Similarly, there is no indication that PNC intended
to make a gift to petitioner. See Commissioner v. Jacobson, 336
U.S. 28, 51 (1949) (a gratuitous forgiveness of debt is a gift,
resulting in no income to the debtor); Helvering v. American
Dental Co., 318 U.S. 322 (1943).
Rather than dispute the facts in this case, petitioner
argues that he is entitled to exclude the full amount of
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