Revenue – primary goal



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§108(a)(1)(C) and (D) – qualified farm indebtedness or qualified real property business indebtedness.

  • §108(e) also has exceptions for solvent debtors.

    • §108(e)(5) – from Zarin – sort of lemon provision. If you buy a car and it’s a lemon and buyer’s note is reduced, you shouldn’t have income.

  • If you can’t exclude under §108, might prefer to avoid cancellation of indebtedness income (taxed at ordinary rates) in favor of capital gain (preferential rates).

  • Valid income from discharge of indebtedness:

    • Valid debt must have existed which was discharged for some amount less than its face amount.

    • Discharge is result of transaction between borrower and lender.

    • NO GIFTS -- no discharge if original debt or subsequent forgiveness is a gift.

      • Purported debt instrument cannot be an equity interest like stock in a company – no discharge if the borrower-issuer later fails to redeem it.

      • Ditto if debt is too contingent or indefinite.

  • When is it a discharge and failure to satisfy the debt?
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