- 50 -
(5th Cir. 1937). As this Court explained in Ryan v.
Commissioner, supra:
This is because the foreclosure action is the amalgam
of two separate events. First, there is an
extinguishment of the underlying indebtedness, giving
rise to income. Cf. secs. 108, 61(a)(12), I.R.C. 1954.
Second, there is a disposition of the property securing
the debt, a sale or exchange. The all events test
requires both of these events to occur before income is
realized.
* * * * * * *
A foreclosure action that is being appealed is not
‘final’ in the normal sense of that word.
Pending foreclosure litigation has “the same effect as would
the fact that there was a period in which the right of redemption
under a foreclosure sale could be exercised.” Morton v.
Commissioner, 104 F.2d 534, 536 (4th Cir. 1939), revg. 38 B.T.A.
534 (1938). The year in which litigation terminates is the year
in which the claimed item is to be taken into account for Federal
tax purposes. See Found. Co. v. Commissioner, 14 T.C. 1333, 1354
(1950).
Citing Morton v. Commissioner, supra, and Rev. Rul. 70-63,
1970-1 C.B. 36, respondent acknowledges on brief: “a bona fide
contest as to the existence of redemption rights may postpone a
disposition, even if such rights are ultimately held not to
exist.” Respondent contends, however, that the foreclosure
litigation was not bona fide. Respondent contends that “the
redemption rights were worthless and would not have been
exercised even if the courts had awarded them” because financial
Page: Previous 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 NextLast modified: May 25, 2011