- 22 -
very recently stated, “Section 108(e)[(1)] precludes us from
relying on any understanding of the judicial insolvency exception
that was not codified in �108.” Gitlitz v. Commissioner, 531
U.S. at __, 69 U.S.L.W. at 4063. Even before Gitlitz was de-
cided, we reached a similar conclusion in Merkel v. Commissioner,
109 T.C. 463 (1997). We stated in pertinent part:
As Congress enacted the insolvency exclusion
[section 108(a)(1)(B)], it eliminated the net assets
test as a judicially created exception to the general
rule of income from the discharge of indebtedness. See
sec. 108(e)(1). The fundamental difference between the
insolvency exclusion [in section 108(a)(1)(B)] and the
[judicially developed] net assets test is that the
insolvency exclusion is applicable only if there exists
income from the discharge of indebtedness, whereas the
net assets test engages in the threshold inquiry.
Therefore, unlike the net assets test, the insolvency
exclusion does not necessarily invade the province of
section 61(a)(12).
Essentially, the insolvency exclusion defers to
section 61(a)(12) as to the definition of the term
“gross income”, but represents a policy judgment that
certain of that income should not give rise to an
immediate tax liability. The relevant committee re-
ports intimate that the policy judgment underlying the
insolvency exclusion serves a humanitarian purpose–-to
avoid burdening an insolvent debtor outside of bank-
ruptcy with an immediate tax liability. * * *
Merkel v. Commissioner, supra at 481-482; fn. ref. omitted.
We conclude that section 108(e)(1) precludes in this case
(or in any other case involving the insolvency exception in
section 108(a)(1)(B)) the application of Cole v. Commissioner,
supra, and any other judicially developed insolvency exception to
the general rule of section 61(a)(12) that gross income includes
Page: Previous 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 NextLast modified: May 25, 2011