Timothy J. Coburn - Page 11

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          Petitioner obviously was surprised by respondent’s raising of a             
          new issue on brief that required additional evidence to decide.             
               Moreover, we find respondent’s reliance on Cozzi v.                    
          Commissioner, 88 T.C. 435 (1987), to be misplaced.  In Cozzi, the           
          Commissioner contended that the taxpayers realized discharge of             
          indebtedness income upon their abandonment of worthless                     
          collateral securing a nonrecourse liability.  The taxpayers in              
          Cozzi contended that they did not realize discharge of                      
          indebtedness income because they did not abandon the collateral             
          during the year in issue.12  Id. at 446.  We held that the facts            
          and circumstances evidenced an abandonment of worthless                     
          collateral by the taxpayers during the year in issue and that               
          such an abandonment of worthless collateral securing a                      
          nonrecourse liability established a discharge of the underlying             
          liability.  Id. at 445-448.  Cozzi did not involve a dispute of             
          whether a debtor’s abandonment of collateral should be treated              
          for Federal income tax purposes as generating income from a sale            
          or from a discharge of the underlying nonrecourse liability.                
               We now turn to an analysis of the Federal income tax                   
          treatment of the loan default and abandonment of the collateral             
          based upon the assumption that the loan was recourse.  In                   
          contrast to a nonrecourse liability, a debtor’s abandonment of              

               12The taxpayers in Cozzi appear to have conceded that                  
          discharge of indebtedness income would result from an abandonment           
          of the collateral.                                                          

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