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In 1980, F transfers to a creditor an asset with a fair
market value of $6,000 and the creditor discharges
$7,500 of indebtedness for which F is personally lia-
ble. The amount realized on the disposition of the
asset is its fair market value ($6,000). In addition,
F has income from the discharge of indebtedness of
$1,500 ($7,500 - $6,000).
Example 8 is controlling in the instant case. As a result
of the foreclosure sale, the bank discharged a total of $137,142
of indebtedness for which petitioners were liable, $95,000 of
which it received on the disposition of the Yantari at that
foreclosure sale. The amount realized on the disposition of the
Yantari is its fair market value which, on the record presented,
we have found to be the sale price of the Yantari at the foreclo-
sure sale. See Frazier v. Commissioner, supra at 246; Community
Bank v. Commissioner, supra at 792. In addition, petitioners
have income from the discharge of indebtedness in the amount of
$42,142 ($137,142, the unpaid principal balance of the loan at
the time of the foreclosure sale, minus $95,000, the fair market
value of the Yantari at that sale).
On the record before us, we find that, in the event the
computations under Rule 155 establish that there is an under-
statement of tax as a result of our holdings and the parties’
concessions in this case that is greater than 10 percent of the
16(...continued)
would result from the foreclosure sale only if petitioners’ debt
were recourse debt. See Frazier v. Commissioner, 111 T.C. 243,
245, 247 (1998); sec. 1.1001-2(a)(1) and (2) and 2(c), Example
(8), Income Tax Regs.
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