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� 3-118 (1998 & Supp. 2005).15 The foregoing demonstrates that
petitioner’s abandonment of the collateral, assuming the loan was
recourse, did not discharge petitioner from the loan during
petitioner’s taxable year 2000. CareMatrix would have until at
least April 15, 2006, to enforce payment on the loan if it is
recourse. A taxpayer must recognize income from the discharge of
indebtedness where (1) a liability exists at the time of the
alleged discharge and (2) the taxpayer was in fact discharged
from such liability. Babin v. Commissioner, 23 F.3d at 1034;
Waterhouse v. Commissioner, T.C. Memo. 1994-467. In the instant
case, the loan default does not result in discharge of
indebtedness income, assuming the loan was recourse, because
petitioner was never discharged from liability on the loan.
Accordingly, we hold that petitioner realized no discharge of
indebtedness income with respect to the loan for petitioner’s
taxable year 2000.
15In the instant case, the promissory note provides: “This
Note shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts, to the maximum extent
the parties may so lawfully agree.” Similarly, the stock pledge
agreement provides: “This Agreement shall in all respects be
construed and interpreted in accordance with and governed by the
laws of the Commonwealth of Massachusetts.” Consequently, the
laws of Massachusetts govern the interests and rights of the
parties with respect to these documents. See Cook v.
Commissioner, 80 T.C. 512, 520 (1983). Mass. Gen. Laws ch. 106,
sec. 3-118 (2005), provides that an action to enforce payment of
a note must be commenced within 6 years after the due date stated
in the note. As noted above, the promissory note provided for a
due date of Apr. 15, 2000.
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