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substituted for another, there has been no consequent freeing of
assets so as to justify application of the rule in United States
v. Kirby Lumber Co., supra.
The parties here do not contest the viability of these
general principles. Petitioners in fact concede that the subject
net recovery buyout transaction could result in a cancellation of
indebtedness. They further do not argue that any of the
exceptions of section 108 should operate to shield resultant
income from recognition. (For the sake of completeness, we note
petitioners have stipulated that neither the qualified farm
indebtedness nor the insolvency provision is at issue in this
case, and no evidence in the record would suggest that either
bankruptcy or qualified real property business indebtedness could
support exclusion.) Petitioners contend, however, that any
relevant discharge, requiring reporting of income, can occur
under the recapture agreement only upon the conveyance of
encumbered land or the passing of 10 years. According to
petitioners, until such time their potential obligation to repay
some part or all of the $177,772 written off precludes a finding
that the debt has been forgiven. They view receiving a
discharge, and the amount thereof, as contingent on eventually
obtaining the release of their property from the recapture
agreement.
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