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Notice of Deficiency
By notice of deficiency, respondent determined that $456,864
of the $1,833,324 discharged debt should be included in
petitioners’ 1995 income.4
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).
4 Respondent determined that petitioner was insolvent to the
extent of $1,376,460 immediately before Notchcliff Associates’
debt was discharged and that, accordingly, petitioner was
entitled to exclude from gross income $1,376,460 of the
discharged debt pursuant to sec. 108(a)(1)(B) and (3).
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Last modified: May 25, 2011