Timothy J. Coburn - Page 6

                                        - 6 -                                         
          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              

Page:  Previous  1  2  3  4  5  6  7  8  9  10  11  12  13  14  15  Next

Last modified: May 25, 2011