- 44 -
A debt is deemed discharged as soon as it becomes clear, on
the basis of a practical assessment of all the facts and
circumstances, that it will never have to be repaid. Cozzi v.
Commissioner, supra at 445. The existence of a faint possibility
that a debt will be collected does not prevent the recognition of
discharge of indebtedness income. Exch. Sec. Bank v. United
States, 492 F.2d 1096, 1099 (5th Cir. 1974). Moreover,
petitioners bear the burden to prove that the event determined by
respondent as effecting the discharge is unreasonable. Cozzi v.
Commissioner, supra at 447-448. Based on the foregoing principles
and circumstances, we conclude that petitioners had discharge of
indebtedness income of $900,000 on December 29, 1994, when the
Miller/Huntington Loan was satisfied to that extent by the Rapp
Group's payments pursuant to their guaranties.
B. Section 108(a)(1)(B) Exclusion
Petitioners further contend that if they had $900,000 of
discharge of indebtedness income in 1994, then they are entitled
to exclude it under section 108(a)(1)(B) because petitioner was
insolvent within the meaning of that section when the discharge
occurred. Section 108(a)(1)(B) provides that "Gross income does
not include any amount which * * * would be includible in gross
income by reason of the discharge (in whole or in part) of
indebtedness of the taxpayer if * * * the discharge occurs when
the taxpayer is insolvent". The exclusion afforded by section
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