- 21 -
Id. at 1113. The Board explained in Cole that it excluded the
value of the taxpayer’s equity in certain life insurance policies
from its determination of the value of the taxpayer’s assets
because “Under the applicable law of New York * * * such equity
in insurance was free from claims of creditors.” Id.
We reject petitioners’ argument that we apply Cole in this
case. When Congress enacted the insolvency exception into the
Code as section 108(a)(1)(B), one of the related provisions it
also enacted is section 108(e)(1).8 Section 108(e)(1) provides
that, for purposes of title 26 of the United States Code (i.e.,
the Internal Revenue Code, including section 61(a)(12)), “there
shall be no insolvency exception from the general rule that gross
income includes income from the discharge of indebtedness”
except as provided in section 108(a)(1)(B). As the Supreme Court
8When Congress “codified the net assets test in section
108(a)(1)(B), (a)(3), and (d)(3),” Merkel v. Commissioner, 109
T.C. at 473, it codified the net assets test developed by Dallas
Transfer & Terminal Warehouse Co. v. Commissioner, 70 F.2d 95
(5th Cir. 1934), revg. 27 B.T.A. 651 (1933), and Lakeland Grocery
Co. v. Commissioner, 36 B.T.A. 289 (1937). It did not codify the
application of the net assets test by Cole v. Commissioner, 42
B.T.A. 1110 (1940). The committee reports accompanying H.R. 5043
make no reference to and do not describe the holding of Cole,
whereas those reports do refer to and describe the holdings of
Dallas Transfer & Terminal Warehouse Co. and Lakeland Grocery Co.
Nor do those committee reports refer to the two cases that
applied Cole v. Commissioner, supra, which had been decided as of
the time Congress passed the 1980 Bankruptcy Tax Act, i.e., Davis
v. Commissioner, 69 T.C. 814, 833-834 (1978), and Estate of
Marcus v. Commissioner, T.C. Memo. 1975-9. See also Babin v.
Commissioner, T.C. Memo. 1992-673, affd. on other grounds 23 F.3d
1032 (6th Cir. 1994); Hunt v. Commissioner, supra, decided after
Congress passed that Act.
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