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sale or other disposition of property generally includes the
amount of liabilities from which the debtor is discharged but
that the amount realized on the disposition of property securing
a recourse liability does not include discharge of indebtedness
income. Consequently, a debtor’s transfer, or abandonment, of
property to a creditor in satisfaction of a nonrecourse liability
is treated as a sale or other disposition of the property, and
any resulting income constitutes gain on the disposition of
property rather than discharge of indebtedness income.10 L&C
Springs Associates v. Commissioner, 188 F.3d 866, 868 (7th Cir.
1999), affg. T.C. Memo. 1997-469. In contrast, a debtor’s
transfer of property to a creditor in satisfaction of a recourse
liability results in gain from the sale or other disposition of
property to the extent that the fair market value of the property
9(...continued)
disposition of property includes the amount of
liabilities from which the transferor is discharged as a
result of the sale or disposition.
(2) Discharge of indebtedness.--The amount realized
on a sale or other disposition of property that secures
a recourse liability does not include amounts that are
(or would be if realized and recognized) income from the
discharge of indebtedness under section 61(a)(12). * *
*
10If the amount of the nonrecourse liability exceeds the
value of the property at the time of the transfer, the debtor
realizes gain to the extent that the liability exceeds the
debtor’s basis in the property at the time of transfer.
Commissioner v. Tufts, 461 U.S. 300, 313 (1983).
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