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as additional security for the partnership’s debt to DOE. In
October 1988, pursuant to a settlement agreement between ANRC and
DOE, ANRC assigned its ANG stock to DOE, which then released the
remaining $570 million indebtedness.
The parties disagree as to when this $570 million debt
balance should be treated as having been discharged. Petitioner
asserts that only $1 billion of the debt was discharged by the
foreclosure sale and that the remaining $570 million of the debt
was not discharged until October 1988, when ANRC assigned its ANG
stock to DOE pursuant to the settlement agreement. Respondent
contends that because the debt was nonrecourse, pursuant to
Commissioner v. Tufts, 461 U.S. 300 (1983), the partnership must
take into account the entire amount of the $1.57 billion
indebtedness in the year in which the foreclosure sale became
final (1987, pursuant to our analysis supra).
A foreclosure sale constitutes a sale for tax purposes.
Helvering v. Hammel, 311 U.S. 504 (1941). The amount realized
from a foreclosure sale includes the amount of liabilities “from
which the transferor is discharged as a result of the sale”.
Sec. 1.1001-2(a)(1), Income Tax Regs.; see Crane v. Commissioner,
331 U.S. 1, 14 (1947); Aizawa v. Commissioner, 99 T.C. at 200-
201. When debt is discharged in a foreclosure sale, tax
consequences may vary depending upon whether the discharged debt
is recourse or nonrecourse. In the case of nonrecourse debt, the
amount realized on the foreclosure sale includes the entire
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