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Discussion4
Section 61 generally defines gross income as “all income
from whatever source derived”. Section 61(a)(12) specifically
provides that gross income includes income from the discharge of
indebtedness. See also Gitlitz v. Commissioner, 531 U.S. 206,
213 (2001); United States v. Kirby Lumber Co., 284 U.S. 1 (1931).
Section 108(a)(1) lists several exclusions from this general
rule, and petitioners argue that the exclusion in section
108(a)(1)(A) applies because the “loan was discharged in [their]
Chapter 13 bankruptcy 4 years ago.”
Section 108(a)(1)(A) provides that gross income does not
include cancellation of indebtedness income if the discharge
occurs in a title 11 case. Title 11 of the United States Code
contains the provisions relating to bankruptcy, including the
rules related to 11 U.S.C. Chapter 13, Adjustment of Debts of an
Individual with Regular Income. Yet the Apple loan was
specifically not discharged--nor was it dischargeable--in the
bankruptcy proceedings. The loan remained on EduCap’s books
until it was written off on April 30, 2003. Section 108(a)(1)(A)
does not apply.5
4 The issue for decision is essentially legal in nature;
accordingly, we decide it without regard to the burden of proof.
5 The other exclusions listed in sec. 108(a)(1) are
inapplicable as well: Petitioners were not insolvent at the time
the debt was discharged, the debt was not qualified farm
(continued...)
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