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under section 61(a)(3). See id.; sec. 1001; sec. 1.1001-2,
Income Tax Regs. The excess of the amount of the discharged
recourse indebtedness over the fair market value is DOI income
includable under section 61(a)(12). See sec. 1.1001-2(a)(2) and
(c) Example (8), Income Tax Regs.
A piece of equipment (a “Bobcat”) was purchased by
petitioner, a friend of petitioner, and petitioner’s father for
use in the friend’s business. A financing statement was filed
naming petitioner as a debtor on a loan secured by the Bobcat and
other property. In 1995, the Bobcat was repossessed by the
creditor which financed the purchase, Associates Commercial
Corporation (Associates), formerly Clark Credit Corporation. A
Form 1099-A, Acquisition or Abandonment of Secured Property, was
issued to petitioner in 1995. This form reflects an outstanding
principal balance of $18,581 on a recourse debt, and the Bobcat’s
fair market value of $12,575. For several months after receiving
the form, petitioner attempted to make payments for the Bobcat.
He then retained the services of an attorney in order to advance
his argument that he never signed a contract regarding the
purchase of the Bobcat and that he did not own it. On February
14, 1996, a Release of All Claims and Indemnification Agreement
was executed by Associates. Pursuant to this agreement,
Associates agreed to release petitioner and his father from any
claim based on the Bobcat sales contract. Petitioner paid
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