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income from the discharge of indebtedness. See Gitlitz v.
Commissioner, supra at ___, 69 U.S.L.W. at 4063; Merkel v.
Commissioner, supra at 481.
Our conclusion that Cole v. Commissioner, 42 B.T.A. 1110
(1940), has no application in the instant case not only carries
out the directive of section 108(e)(1), it also carries out the
intention of Congress in enacting section 108(d)(3) that assets
exempt from the claims of creditors under applicable State law
are not to be excluded in determining the fair market value of a
taxpayer’s assets for purposes of ascertaining whether the
taxpayer is insolvent within the meaning of section 108(d)(3).
Congress’ intention is disclosed by an examination of section
108(d)(3) together with the 1978 Bankruptcy Reform Act and its
legislative history and the 1980 Bankruptcy Tax Act and its
legislative history. One of the stated policies of the 1978
Bankruptcy Reform Act was “to provide a fresh start”, S. Rept.
95-989, at 6 (1978), for debtors coming out of bankruptcy. The
principal mechanism adopted by Congress in the 1978 Bankruptcy
Reform Act for providing such a “fresh start” in the Federal
bankruptcy laws is through the discharge of debts.9 See id. at
98.
9The discharge-of-debt provisions of the 1978 Bankruptcy
Reform Act, Pub. L. 95-598, sec. 727, 92 Stat. 2609, are de-
scribed in the accompanying Senate report as “the heart of the
fresh start provisions of the bankruptcy law”. S. Rept. 95-989,
at 7, 98 (1978).
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