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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
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Last modified: May 25, 2011