- 17 -
settlement, the taxpayer was insolvent. After that settlement,
the taxpayer had net assets of $39,597, which, as noted by the
Board, “were freed from the claims of creditors as a result of
the * * * [discharge of indebtedness].” Lakeland Grocery Co. v.
Commissioner, supra at 291. The Board distinguished Dallas
Transfer & Terminal Warehouse Co. v. Commissioner, supra, from
the facts before it and concluded that the rationale of United
States v. Kirby Lumber Co., 284 U.S. 1 (1931), was applicable to
those facts. See Lakeland Grocery Co. v. Commissioner, supra at
291-292. The Board held that the taxpayer realized gain to the
extent of the value of the assets freed from the claims of its
creditors, i.e., to the extent it had assets (i.e., $39,597)
which ceased to be offset by any liability. See id. at 292.
We recently had occasion in Merkel v. Commissioner, 109 T.C.
463 (1997), to review the three cases (United States v. Kirby
Lumber Co., supra, Dallas Transfer & Terminal Warehouse Co. v.
Commissioner, supra, and Lakeland Grocery Co. v. Commissioner,
supra) to which the committee reports accompanying H.R. 5043
refer and which we discuss above. In Merkel, as here, we had to
determine whether a debtor qualified for the insolvency exception
in section 108(a)(1)(B). However, in order to resolve that issue
in Merkel, we had to determine the meaning of the word “liabili-
ties” as used in the definition of the term “insolvent” in
section 108(d)(3). See Merkel v. Commissioner, supra at 466-467.
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