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the loan was nonrecourse and that CareMatrix held the collateral.
CareMatrix took no further action to collect the outstanding
principal and interest on the loan from petitioner. In an
affidavit stipulated by the parties, Mr. Gosman stated that
petitioner and CareMatrix “intended that, in the event of a
default, repayment would be made only from the collateral and no
other source.” Consequently, we conclude that petitioner
abandoned the collateral upon his default. Accordingly, we
consider the Federal income tax consequences of petitioner’s
default on the loan and abandonment of the collateral.
The parties in the instant case dispute whether the loan is
recourse or nonrecourse.7 The regulations under section 1001
distinguish between a debtor’s disposition of collateral in
satisfaction of an underlying nonrecourse liability and a
debtor’s disposition of collateral in satisfaction of an
underlying recourse liability.8 Specifically, section 1.1001-
2(a), Income Tax Regs.,9 provides that the amount realized on the
7Respondent concedes that the loan constitutes bona fide
indebtedness.
8Such a distinction may affect the character of any gain or
loss on the transaction and the availability of certain
exclusions from gross income. See secs. 1221, 108.
9Sec. 1.1001-2, Income Tax Regs. Discharge of liabilities.--
(a) Inclusion in amount realized. (1) In general.--
Except as provided in paragraph (a)(2) and (3) of this
section, the amount realized from a sale or other
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