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We must also reject petitioner’s argument that he is not
required to recognize gain from the foreclosure sale, because he
was not the borrower of the original loan proceeds and received
no benefit therefrom. Petitioner argues:
The law is clear that to realize gain based upon market
value of property transferred, the transfer must be in
consideration of the discharge or reduction of
indebtedness. This gain is not realized when the
indebtedness is based upon a guaranty and the taxpayer
received none of the loan proceeds.
Petitioner cites Landreth v. Commissioner, 50 T.C. 803 (1968);
Payne v. Commissioner, T.C. Memo. 1998-227, revd. on other
grounds 224 F.2d 415 (5th Cir. 2000); and Whitmer v.
Commissioner, T.C. Memo. 1996-83, in support of his position. We
find those cases distinguishable in that they dealt with
discharge of indebtedness income of a guarantor, not gain
realized from the sale of the guarantor’s property at a
foreclosure sale.
In Frazier v. Commissioner, supra at 248, we achieved parity
between the tax results to a party owning property sold in a
foreclosure sale and the tax results to the willing seller who
sells the property in an arm’s-length transaction to a willing
buyer, “neither being under compulsion to buy or sell and both
having reasonable knowledge of relevant facts.”59 Applying that
59A foreclosure, like a voluntary sale, is a disposition
within the scope of the gain or loss provisions of sec. 1001.
See Helvering v. Hammel, 311 U.S. 504 (1941); 2925 Briarpark,
Ltd. v. Commissioner, 163 F.3d 313, 318 (5th Cir. 1999), affg.
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