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taxpayer’s husband had executed a note in favor of a bank. At
the husband’s request in 1938, the taxpayer substituted her own
$100,000 note for a portion of the indebtedness without receiving
any compensation in return. Id. at 936. In 1943, the bank wrote
off $50,000 of the note. In 1946, a relative purchased the note
for $50,000 with funds provided by the taxpayer and her husband,
and the note was retired. Id. The Commissioner determined that
the wife had realized $50,000 of discharge of indebtedness income
in 1946. Id.
The Court of Appeals for the Sixth Circuit held that the
taxpayer had not realized income. The court stated that while a
“mechanical application” of tax law would support the
Commissioner’s determination, the court “need not * * * be
oblivious to the net effect of the entire transaction”. Id. at
938-939. The court concluded that “by any realistic standard the
* * * [taxpayer] never realized any income at all from the
transaction”. Id. at 938. The court also concluded that
“Stripped of superficial distinctions, the Rail Joint Co. case is
identical in principle with the present case.” Id. at 939.
We note that Bradford did not involve a debt instrument
issued for less than par value. Additionally, Bradford involved
unusual facts, suggesting that it is of limited application. For
example, the court did not address whether the taxpayer’s husband
had realized discharge of indebtedness income because his tax
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