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DOI Income--Section 108
Section 61(a) defines the term “gross income” broadly to
mean all income from whatever source derived, including income
from discharge of indebtedness. See sec. 61(a)(12). Section
108(a) provides certain exceptions to section 61(a)(12). See
Gitlitz v. Commissioner, 531 U.S. __, __, 69 U.S.L.W. 4060, 4062
(Jan. 9, 2001). As pertinent here, section 108(a)(1)(B) (insol-
vency exception) excludes from gross income any amount that
otherwise would be includable in gross income by reason of the
discharge in whole or in part of indebtedness of the taxpayer if
the discharge occurs when the taxpayer is insolvent. The amount
of DOI income excluded under section 108(a)(1)(B) is not to
exceed the amount by which the taxpayer is insolvent. See sec.
108(a)(3). The term “insolvent” is defined in section 108(d)(3)
as follows:
(3) Insolvent.–-For purposes of this section
[108], the term “insolvent” means the excess of liabil-
ities over the fair market value of assets. With
respect to any discharge, whether or not the taxpayer
is insolvent, and the amount by which the taxpayer is
insolvent, shall be determined on the basis of the
taxpayer’s assets and liabilities immediately before
the discharge.
The parties’ general dispute here is whether, pursuant to
section 108(a)(1)(B), petitioners may exclude from gross income
for the year at issue $42,142 of DOI income resulting from the
foreclosure sale on February 8, 1993. The parties agree that
resolution of that issue depends on whether, immediately before
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Last modified: May 25, 2011