Garry D. Acuncius and Danalene L. Acuncius - Page 7

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          includable in gross income by reason of the discharge of                    
          indebtedness of the taxpayer if the discharge occurs when the               
          taxpayer is insolvent.  The amount of this income excluded under            
          section 108(a)(1)(B) is not to exceed the amount by which the               
          taxpayer is insolvent.  Sec. 108(a)(3).  The term “insolvent” is            
          defined in section 108(d)(3) as:                                            
                    Insolvent.--For purposes of this section, the term                
               “insolvent” means the excess of liabilities over the                   
               fair market value of assets.  With respect to any                      
               discharge, whether or not the taxpayer is insolvent,                   
               and the amount by which the taxpayer is insolvent,                     
               shall be determined on the basis of the taxpayer’s                     
               assets and liabilities immediately before the                          
          A taxpayer claiming the benefit of the insolvency exception must            
          prove:  (1) With respect to any obligation claimed to be a                  
          liability, that, as of the calculation date, it is more probable            
          than not that he will be called upon to pay that obligation in              
          the amount claimed; and (2) that the total liabilities so proved            
          exceed the FMV of his assets.  Merkel v. Commissioner, 109 T.C.             
          463, 484 (1997), affd. 192 F.3d 844 (9th Cir. 1999).                        
               We note section 108(e)(1) provides that, “there shall be no            
          insolvency exception from the general rule that gross income                
          includes income from the discharge of indebtedness” except as               
          provided in section 108, eliminating any judicially created                 
          exceptions to the general rule of income from discharge of                  
          indebtedness.  See Carlson v. Commissioner, 116 T.C. 87, 100                

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