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Similarly, in the instant case, the efforts of the
partnership’s principals to restructure the debt and to appeal
the foreclosure order convince us that they considered the
project to be of continuing utility and had not abandoned it as
of June 30 or July 14, 1986.
Consequently, we hold that for Federal tax purposes the
there was no sale, exchange, abandonment, or other disposition of
the project assets until November 2, 1987, when the foreclosure
litigation ended.
II. When Was the Partnership’s Indebtedness Discharged?
In August 1985, the partnership defaulted on its $1.57
billion debt to FFB under the credit agreement. Shortly
thereafter, pursuant to the loan guarantee agreement, DOE paid
off the debt. The partnership’s obligation to FFB then shifted
to DOE, not as a new debt, but by subrogation, with DOE stepping
into FFB’s shoes as creditor. See Putnam v. Commissioner, 352
U.S. 82, 85 (1956); Lair v. Commissioner, 95 T.C. 484, 490
(1990).
In July 1986, pursuant to the indenture of mortgage, the
partnership’s assets were “sold” to DOE at foreclosure for $1
billion; this amount was applied against the partnership’s debt
to DOE. Petitioner asserts, and respondent does not dispute,
that DOE purposefully bid less than the full amount of the
partnership’s $1.57 billion debt so as to have available the
remaining debt to acquire the ANG stock, which ANRC had pledged
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