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property’s adjusted basis over the amount realized. Relying on
Cozzi v. Commissioner, 88 T.C. 435 (1987),5 respondent contends
that petitioner’s default on the loan results in discharge of
indebtedness income to petitioner pursuant to section 61(a)(12).
Petitioner contends that the loan default is treated as a sale or
other disposition of the collateral pursuant to sections 61(a)(3)
and 1001(a), rather than a discharge of indebtedness.
The facts and circumstances of the instant case demonstrate
that petitioner abandoned the collateral in 2000.6 CareMatrix
took possession of the loan documents and the stock certificate
during the loan transaction. CareMatrix demanded payment from
petitioner in 2000, but petitioner refused to pay on grounds that
5Respondent also cites Carlins v. Commissioner, T.C. Memo.
1988-79, which relied on our holding in Cozzi v. Commissioner, 88
T.C. 435 (1987).
6We apply a facts and circumstances analysis to determine if
or when an abandonment occurred. Cozzi v. Commissioner, supra at
446. “The proper test is whether, under the facts and
circumstances, it is clear for all practical purposes that the
taxpayer will not retain the property; an overt act of
abandonment by the taxpayer is not necessary.” L&C Springs
Associates v. Commissioner, 188 F.3d 866, 868 (7th Cir. 1999),
affg. T.C. Memo. 1997-469.
In 2925 Briarpark v. Commissioner, 163 F.3d 313, 318 (5th
Cir. 1999), affg. T.C. Memo. 1997-298, the Court of Appeals for
the Fifth Circuit stated that sec. 61(a)(3) applies if (1) the
debtor is relieved of the obligation to repay the debt and (2)
the debtor is relieved of title to the collateral. However, the
court did not hold that sec. 61(a)(3) cannot apply in absence of
a formal transfer of title. Consequently, the formal passage of
legal title does not necessarily establish the time of
abandonment. L&C Springs Associates v. Commissioner, supra at
870.
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