- 15 - payer’s] dealings it made available $137,521.30 [of] assets previously offset by the obligation of bonds now extinct.” Id. at 3. Several years after the Supreme Court decided Kirby Lumber Co., the U.S. Court of Appeals for the Fifth Circuit distin- guished that case and established an insolvency exclusion to the rule that the Supreme Court had announced in that case. See Dallas Transfer & Terminal Warehouse Co. v. Commissioner, 70 F.2d 95 (5th Cir. 1934), revg. 27 B.T.A. 651 (1933). In Dallas Transfer & Terminal Warehouse Co., the taxpayer was relieved of indebtedness as the lessee of certain real property with respect to unpaid rent and other bills totaling $107,881 when it conveyed to the lessor of that property certain real property of lesser value (i.e., $42,507) in which the taxpayer’s equity at the time of conveyance was $17,507. See id. The Court of Appeals held that the taxpayer did not realize income as a result of that transaction. See id. at 96. In so holding, the Court of Appeals stated: In effect the transaction was similar to what occurs in an insolvency or bankruptcy proceeding when, upon a debtor surrendering, for the benefit of his creditors, property insufficient in value to pay his debts, he is discharged from liability for his debts. This does not result in the debtor acquiring something of exchange- able value in addition to what he had before. There is a reduction or extinguishment of liabilities without any increase of assets. There is an absence of such a gain or profit as is required to come within the ac- cepted definition of income. * * * It hardly would be contended that a discharged insolvent or bankruptPage: Previous 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Next
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