Jose Gracia and Nancy Gracia - Page 5

                                        - 5 -                                         
                                     Discussion                                       
               Generally, discharge of indebtedness gives rise to gross               
          income to the obligor.  Sec. 61(a)(12); see Gitlitz v.                      
          Commissioner, 531 U.S. 206, 213 (2001).  Section 108 provides               
          certain exceptions to this general rule.  Pursuant to one of                
          these exceptions, income from discharge of indebtedness is                  
          excluded from gross income if “the discharge occurs in a title 11           
          case”.  Sec. 108(a)(1)(A).  This provision is applied at the                
          partner level.  Sec. 108(d)(6).  Consequently, the relevant                 
          question is whether petitioner’s debt (as opposed to the                    
          partnership’s debt) was discharged “in a title 11 case.”                    
               For purposes of section 108, a “title 11 case” is defined as           
          “a case under title 11 of the United States Code (relating to               
          bankruptcy), but only if the taxpayer is under the jurisdiction             
          of the court in such case and the discharge of indebtedness is              
          granted by the court or is pursuant to a plan approved by the               
          court.”  Sec. 108(d)(2).                                                    
               The partnership’s chapter 11 bankruptcy was a case under               
          title 11 of the United States Code.  See 11 U.S.C. ch. 11 (2000).           
          Pursuant to its December 19, 1995, order, the bankruptcy court              
          discharged and released petitioner from all liability to the                
          trustee, the bank, and all other creditors that might have claims           
          arising from or relating to the partnership, petitioner’s status            
          as a general partner in the partnership, and the April 9, 1985,             
          personal guaranty agreement.  In the same order, the bankruptcy             
          court explicitly asserted its jurisdiction over petitioner for              





Page:  Previous  1  2  3  4  5  6  Next

Last modified: May 25, 2011