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1978, Pub. L. 95-598, 92 Stat. 2549 (1978 Bankruptcy Reform Act),
which enacted title 11 into the United States Code (title 11).
In passing the 1980 Bankruptcy Tax Act, Congress “intended to
complete the process of revising and updating Federal bankruptcy
laws by providing rules governing the tax aspects of bankruptcy
and related tax issues.” Staff of Joint Comm. on Taxation,
Description of H.R. 5043 (Bankruptcy Tax Act of 1980) as Passed
by the House, at 3 (J. Comm. Print 1980). Both the Senate and
House reports accompanying H.R. 5043, 96th Cong., 2d Sess. (1980)
(H.R. 5043), which became the 1980 Bankruptcy Tax Act, indicate
that the proposed insolvency exception in section 108(a)(1)(B)
was intended to ensure that an insolvent debtor outside of
bankruptcy (like a debtor coming out of bankruptcy who is ac-
corded a “fresh start” under the Federal bankruptcy laws) is not
to be burdened with an immediate tax liability. See S. Rept. 96-
1035, supra, 1980-2 C.B. at 624; H. Rept. 96-833, at 9 (1980).
The committee reports accompanying H.R. 5043 describe in
pertinent part the tax law governing DOI income that was extant
at the time Congress passed the 1980 Bankruptcy Tax Act, as
follows:
Under present law, income is realized when indebt-
edness is forgiven or in other ways cancelled (sec.
61(a)(12) of the Internal Revenue Code). For example,
if a corporation has issued a $1,000 bond at par which
it later repurchases for only $900, thereby increasing
its net worth by $100, the corporation realizes $100 of
income in the year of repurchase (United States v.
Kirby Lumber Co., 284 U.S. 1 (1931)).
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