Freeing of assets – US v. Kirby Lumber Co. – sale and re-purchase of the company’s bonds at a lesser price (?!) – assets freed that would otherwise be used to pay debt so court finds income.
Doesn’t always work since a taxpayer can be relieved of debt without having assets made available. P with assets valued at $8000 borrows $10,000 and loses all it. If you uses $8000 to repay part of the debt and creditor cancels the balance, no assets are freed. Still an increase in wealth though because of the benefit conferred.
Cancellation of consumption debt – Zarin v. Commissioner – discharge of gambling debt. P argues that settlement merely reduces amount of loss and is not income.
Dispute as to debt does not exist just because lawsuit required before payment made.