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In the instant case, respondent confused both the facts and
the holding of Cozzi. Respondent’s trial memorandum stated as
follows:
I.R.C. � 61(a)(12) provides that gross income
includes income from discharge of indebtedness. On
April 15, 2000, when petitioner’s liability for a loan
from CareMatrix for $621,980 plus interest of $128,080
(total of $750,000,) became due, petitioner defaulted.
Petitioner had executed a non-recourse promissory note,
and the only collateral for the loan involved
petitioner’s 57,248 shares of common stock of
PhyMatrix. CareMatrix opted not to take those shares
of stock pursuant to the default.
In Cozzi v. Commissioner, 88 T.C. 435 (1987), the
lender abandoned the loan’s security due to its nominal
value. The Court determined that there was income from
discharge of indebtedness income in that situation,
stating: “The moment it becomes clear that a debt will
never have to be paid, such debt must be viewed as
having been discharged.” Id. at 445.
Thus, petitioner received $750,000 in income from
discharge of indebtedness for the year 2000 pursuant to
section 61(a)(12).
Respondent’s trial memorandum therefore suggests that Cozzi,
stands for the proposition that a debtor realizes discharge of
indebtedness income upon the lender’s abandonment of collateral
securing a nonrecourse loan. Respondent’s opening brief also
cites Cozzi, for the proposition that a lender’s abandonment of
collateral securing a nonrecourse loan results in discharge of
indebtedness income to the borrower, and the opening brief argues
at length that CareMatrix abandoned the collateral in 2000.
Respondent’s reply brief summarizes respondent’s position as
follows: “In sum, * * * [CareMatrix] ignored all of its rights
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