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section 108(a)(1)(B) and related provisions into the Code. As we
explained in Merkel v. Commissioner, 109 T.C. at 475,
Congress’ indicated purpose of not burdening an insol-
vent debtor outside of bankruptcy with an immediate tax
liability, * * *, together with the operation of the
insolvency exclusion [section 108(a)(1)(B)] and its
limitation under section 108(a)(3), in accordance with
the statutory insolvency calculation [section
108(d)(3)], suggest that Congress intended to make a
debtor’s ability to pay an immediate tax on income from
discharge of indebtedness the controlling factor in
determining whether a tax burden is imposed. * * *
Ability to pay an immediate tax (i.e., the statu-
tory notion of insolvency) is a question of fact
* * * .
Although an asset of a debtor may be exempt from the claims
of creditors under applicable State law, if that asset and the
debtor’s other assets exceed the debtor’s liabilities, the debtor
has the ability to pay an immediate tax on income from discharged
indebtedness. In the instant case, immediately preceding the
foreclosure sale on February 8, 1993, the aggregate fair market
value of petitioners’ assets was $875,251, which included peti-
tioners’ fishing permit valued at $393,400 that they claim is
exempt from the claims of creditors under the law of the State of
Alaska. At that time, petitioners’ liabilities totaled $515,930.
On the record before us, we find that petitioners had the “abil-
ity to pay an immediate tax on”, id., the $42,142 of DOI income
resulting from the foreclosure sale in question.14 Requiring
14Not only did petitioners have the ability to pay an imme-
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