Advising the noncorporate debtor through foreclosure: possibilities for eliminating capital gains in Chapter 11.

Foreclosure often results in substantial tax liability when one is least able to afford it. In a depressed real estate market, it is common to own real property with a fair market value (FMV) less than the mortgages encumbering the property; or, a business acquisition may be financed and, subsequently, the debt service cannot be met. Since the computation of the amount realized from a disposition of property generally includes cancellation of debt(1) (COD), there is an incentive to just walk away from a property that will trigger COD income, but no proceeds, on a disposition.

Because of these tax consequences, the analysis of whether to walk away from a property should not focus on mere economics. Careful planning and the judicious use of bankruptcy law can alleviate much of the sting of COD income and maximize the benefits of tax attributes (e.g., suspended losses). In addition, the success of a bankruptcy reorganization can be affected by the proper timing of a disposition of property before or after the bankruptcy filing.

Filing a chapter 11 bankruptcy petition dramatically changes the tax landscape, both procedurally and substantively. Chapter 11 enables a debtor to remain in control of the estate's assets and to propose a plan of reorganization. (In contrast, chapter 7 bankruptcy involves a liquidation of an individual debtor's assets by a court-appointed trustee.) The filing of a bankruptcy petition immediately curtails Federal(2) and state tax collection efforts. Creditors will be held at bay and the debtor will gain access to valuable tools enabling escape from uneconomic leases, contractual relationships and the burdens of past bad business decisions. A business reorganization can save goodwill and jobs and insulate future profitability from creditors. Furthermore, the filing creates a new forum to adjudicate tax disputes, even after the lapse of the 90-day period to challenge assessments in Tax Court.(3)

Whether an individual can escape capital gains tax liability stemming from COD income by filing for bankruptcy has been the subject of intense debate in the case law and the subject of tax regulations(4); a complex interaction among the Code, regulations and bankruptcy case law contributes to the analysis of this issue. Capital gains taxes incurred during the administration of a bankruptcy case may provide a limited exception to the general rule that taxes incurred within three years of a bankruptcy filing are nondischargeable.(5)

Unlike income taxes incurred prior to the commencement of a bankruptcy filing, income taxes incurred by a bankruptcy estate are payable only out of estate assets and constitute an administrative expense.(6) Sec. 1398(e)(2) provides that the debtor and the estate are separate taxable entities; thus, if the bankruptcy estate is insolvent or has only assets that are exempt from distribution, the taxing entity will be unable to collect the tax from the estate or seek a deficiency judgment from the debtor.

This article considers some of the tax planning decisions to be made in contemplating a chapter 11 filing (e.g., Sec. 108 issues), examines the separate taxable estate that arises on the filing of a bankruptcy petition, contrasts the results an individual debtor (including a husband and wife) can achieve by filing under chapter 11 versus chapter 7, considers special issues posed by partnerships and analyzes the Sec. 1398 regulations.

Timing Issues and Sec. 108

The preliminary planning considerations in deciding to file for chapter 11 are Sec. 108 and managing and protecting a client's right to use tax attributes. Sec. 108 can play a significant role in excluding a portion of the capital gain that would otherwise be taxable on a foreclosure. The Supreme Court's proclamation in Crane(7) that, on foreclosure, amount realized includes COD, still creates a shock for unsuspecting taxpayers.

Under Sec. 61(a)(12), the freeing of a liability is an accession to wealth subject to tax. When capital gain property is lost in foreclosure and generates proceeds smaller than the outstanding debt, the taxpayer realizes capital gain in the amount of the debt. Since the funds were not taxed when borrowed, when the liability is subsequently forgiven, COD income arises. In the absence of Sec. 108, this gain would be taxable under Tufts.(8)

* Application of Sec. 108

Sec. 108 may permit a taxpayer who has filed for bankruptcy to exclude a portion of the capital gain realized on foreclosure, if the debt is recourse.(9) If a creditor has recourse against the debtor, the excess of the outstanding debt over the property's FMV is COD income.(10) Since most business guarantees and obligations are recourse, nonrecourse liabilities will most likely arise for individuals investing in assets through a limited partnership or under a state law providing for nonrecourse residential mortgages.

Insolvent taxpayers who have not filed for bankruptcy may also benefit from Sec. 108, as well as taxpayers whose loans have been seller financed, so that the COD is a purchase-price reduction.(11) In either case, under Sec. 108(b), the price for excluding COD income is the reduction of certain tax attributes (e.g., net operating losses (NOLs), general business credits, capital loss carryovers, basis, passive activity losses (PALs) and foreign tax credit carryovers) by the amount of income forgiven.(12) Tax attribute reductions, which, under Sec. 108(b)(3)(A), are generally one dollar for each dollar of COD income excluded, are disclosed on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (also, Sec. 1082 basis adjustment), which should be filed with the taxpayer's return for the tax year in which discharge in bankruptcy occurs. Alternatively, a taxpayer may elect under Sec. 108(b)(5) to reduce the basis of depreciable property.

The reduction of tax attributes or election to reduce basis occurs on the first day of the tax year following the year in which the COD income occurs. Reducing attributes merely postpones gain recognition to a later date (when there will be less basis or fewer attributes to offset gain). By planning to dispose of all depreciable property and to consume tax attributes before the end of the tax year, a taxpayer can transform a temporary deferral into a permanent benefit.(13)

* Using suspended losses

Sec. 108 mandatory tax attribute reduction requires that careful consideration be given to timing issues. COD income can be offset by suspended tax attributes, including NOLs and PALs, even if the taxpayer is not insolvent or undergoing bankruptcy.

A taxpayer with multiple properties and large NOLs might benefit from disposing of properties that will generate capital gain (as opposed to COD income) before filing for chapter 11.(14) If some of the properties are overencumbered, but the debtor has equity in others, on filing for chapter 11, the debtor should make a split-year election (discussed below) to terminate his tax year as of the day before the filing of the bankruptcy petition; this may ensure that suspended losses will not transfer to the bankruptcy estate and will offset the capital gain. When the overencumbered properties are subsequently lost during chapter 11, Sec. 108 will exclude the COD income at a time when there are no NOLs.

If the taxpayer is insolvent prior to filing for chapter 11, he can elect to reduce basis under Sec. 108(b)(5) as an alternative to reducing NOLs. However, a taxpayer need not be insolvent to seek chapter 11 relief and, thus, can gain the benefits of Sec. 108 without being insolvent at the time of filing.

* Making a split-year election

One of the tax decisions that must be made early in a chapter 11 bankruptcy is whether to make a Sec. 1398(d)(2) split-year election. As was previously discussed, the election allows the taxpayer to terminate his tax year as of the day before the date of filing of the bankruptcy petition, and start a new year on the date of petition filing. The election must be made by the fifteenth day of the fourth month following the date of the bankruptcy filing by filing the return for the short year and noting "Section 1398 Election" on top.

A split-year election will probably make no difference in a bankruptcy case filed on the first day of the tax year, unless the debtor incurs significant tax liabilities thereafter. If the election is made in such case, the tax liabilities will be treated as a claim against the estate, as opposed to as an estate administrative expense.(15) The former can be paid in installments as long as the chapter 11 reorganization plan provides for payment of the tax within six years of the assessment date, while the latter must be paid in full as a prerequisite to plan confirmation. The likelihood that a debtor will have insufficient cash reserves to satisfy a large administrative tax liability can jeopardize a reorganization.

A split-year election can also reduce the depletion of NOLs due to tax accounting for administrative expenses. Sec. 1398(h)(2)(C) requires a bankruptcy estate to use administrative losses after trade or business NOLs. Substantial legal, accounting and other professional fees have become a trademark of bankruptcy estate administration and a significant deduction for tax planning purposes. Under Sec. 1398(h)(2)(D), unused administrative expenses (unlike NOLs) do not revert to the debtor on estate termination.

The relatively greater longevity of NOLs and the requirement that they be used prior to use of carryover administrative expense deductions requires careful planning of the timing of an asset disposition that will produce significant NOLs. It may be preferable to defer the disposition of an NOL-producing asset until the later stages of a bankruptcy proceeding (i.e., until after the administrative expenses have been used to offset other estate income). Here, the split-year election provides an important tool to circumvent the requirement that NOLs be applied prior to administrative expense deductions.

* Using suspended PALs

The timing of the disposition of assets is also important when the taxpayer is facing foreclosure on several properties that have suspended PALs. Sec. 108(b)(3) requires that PALs be reduced for excluded COD income after NOLs, general business credits, minimum tax credits, capital loss carryovers and basis. Therefore, if a taxpayer has a property encumbered by a recourse mortgage, a second property encumbered by a nonrecourse mortgage, and a suspended PAL, the nonrecourse property should be disposed of first, so that any gain can be offset by the PAL. Subsequently, the recourse property can be disposed of, and the PAL, already used up, will not have to be reduced by the excluded COD income.

The Trapping of Gain Within an Estate

For debtors who are individuals, the filing of a bankruptcy petition prior to conveyance or foreclosure of property may eliminate both capital gain income generated by nonrecourse liabilities and COD income. Under Sec. 1398(f), a debtor's transfer of property to his bankruptcy estate does not produce gain or loss.

Under Bankruptcy Code Section 541(a)(1), the filing of a bankruptcy petition creates an estate consisting of all legal or equitable interests of the debtor in property as of the commencement of the case. Under Rev. Rul. 72-387,(16) an individual's filing of a chapter 7 or 11 petition gives rise to a separate taxable entiry; this differs from the treatment of a partnership or corporation, for which Sec. 1399 provides that no new taxable entity arises. According to Sec. 1398(b)(1), however, the separate entity does not come into existence if the bankruptcy case is subsequently dismissed.

Under Sec. 1398(g), the bankruptcy estate also succeeds to the debtor's tax attributes, as it will be taxed on gain from the disposition of the debtor's assets. Under Regs. Sec. 1.1398-1(c), this includes NOLs, charitable deduction carryovers, and suspended PALs and passive activity credits. Thus, sales consummated during the administration of an estate will generate tax liabilities payable by the estate, not the debtor. The single exception to this rule, Sec. 1398(f)(2), applies to transfers back to the debtor at the termination of the bankruptcy estate. At that time, the estate conveys back to the debtor the estate's tax attributes, under Sec. 1398(i).

A key issue is whether a conveyance out of a bankruptcy estate constitutes an "abandonment" or a sale.(17) If property is abandoned, the debtor becomes responsible for any tax on a later disposition as if there were no bankruptcy proceeding.(18) In chapter 11, this issue becomes more complex, because the debtor typically remains in control of the estate and can choose to convey property to a third party either through sale or foreclosure.(19) Conveyances to third parties by an estate are not abandonments, because the property does not revert back to the debtor. The current rule is that conveyances by an individual debtor's chapter 7 estate are nontaxable abandonments, while conveyances from a chapter 11 estate are taxable sales.

* Chapter 11 case law

A number of bankruptcy courts and commentators have considered whether an individual can file for bankruptcy and trap capital gain inside a bankruptcy estate as a dischargeable debt.(20) This result follows from the Code and is consistent with the policy of not wanting to tax an insolvent party on transactions that generate little or no proceeds.(21) Equity favors not burdening the debtor with a significant capital gain, so as not to jeopardize the debtor's prospects for a fresh start (particularly in foreclosure situations, because the debtor is likely to generate substantial tax liability, while having no proceeds with which to satisfy the obligation).

A chapter 11 case commences with the filing of a bankruptcy petition and may terminate on confirmation of a chapter 11 reorganization plan, dismissal of the case or conversion of the case to chapter 7. Only conversion offers the individual debtor an opportunity to escape capital gain, because capital gain incurred during the administration of a chapter 11 case poses a formidable barrier to plan confirmation. Similarly, dismissal of the chapter 11 case provides no help to the debtor, because the debtor is then treated as if no petition had been filed and no separate taxable entity ever existed.(22) Unlike confirmation or dismissal, on conversion to chapter 7, the obligations of the chapter 11 estate roll into the chapter 7 estate; they do not revest in the debtor.

Chapter 11 case law has supported the theory that capital gain remains in the estate and has adopted the tax law's broad definition of a "sale" to include any conveyance, voluntary or involuntary.(23) Accordingly, if the bankruptcy stay is lifted(24) to allow foreclosure on property in a chapter 11 estate, the foreclosure will be characterized as a sale by the estate to the creditor that generates gain taxable to the estate. In In re A.J. Lane & Co.,(25) the bankruptcy court established this rule for chapter 11 cases ultimately converted to chapter 7. While that case involved a dispute between a debtor and a chapter 11 trustee, the existence of the tax liability rendered any plan of reorganization infeasible and dictated that the case would ultimately be converted to chapter 7. Lane involved three apartment complexes owned by the debtor with mortgages substantially in arrears. The trustee asked the bankruptcy court to rcharacterize the imminent foreclosure on one complex by a secured creditor, who was granted relief from the stay, as an abandonment to the debtor, with the foreclosure then to be treated as a sale by the debtor.

The threshold issue was whether a sale consummated by a chapter 11 debtor would be characterized by bankruptcy law as a sale or as an abandonment. The court concluded that the benefit to the estate of being relieved of substantial debt provided an economic justification for the sale that militated against recharacterization as an abandonment, an observation bolstered by the fact that the estate would hold the tax attributes on an abandonment of the property and, therefore, should be liable for the tax. The court also noted that taxing the debtor on a foreclosure would clearly burden the debtor's fresh start.

* Gain on disposition of a partnership interest

COD raises a number of complex issues for partnerships. In In re Rubin,(26) the bankruptcy court extended the reasoning of Lane to a motion by unsecured creditors seeking to compel abandonment of the debtor's partnership interest back to the debtor to avoid a court-approved settlement plan. Because the gain from thr transfer would have passed through to the partners, the issue was the party who would be responsible for the substantial capital gain. The court reasoned that the estate could not escape tax by abandoning the property to the debtor; thus, the estate, not the partners, was liable for the capital gain tax liability.

A closely related issue arises when a partnership generates COD income that must be shared among the partners. While a partnership is a separate entity for many purposes, COD income can only be excluded by partners who are insolvent or have filed for bankruptcy; the solvency of the partnership or its status as a debtor in bankruptcy is irrelevant in applying Sec. 108. This contrasts with S corporations, in which solvency is measured at the corporate level. Assuming that a partner is insolvent, the issue is whether an individual partner who excludes COD income under Sec. 108 can increase basis for his share of such income, a position rejected by the Sixth Circuit in Babin.(27) This holding is problematic because, under Sec. 752(b), a partner must pay tax on a deemed distribution that results from a reduction of the partner's proportionate share of the partnership's liabilities. Denying the partner an increase in basis for the COD income mandates that the taxpayer pay tax for the overall reduction of partnership liabilities, a result that makes the partner's insolvency irrelevant and reads Sec. 108 out of the Code. The IRS acknowledged in Rev. Rul. 71-301(28) that the Sec. 731(a) gain recognition provisions do not apply to insolvent partners who undergo bankruptcy liquidations.

The Babin court should have followed Rev. Rul. 71-301. To compound the absurd result in that case, the court allowed the IRS to litigate a position contrary to the revenue ruling. Hopefully, future decisions will alleviate the problem by recognizing the negative policy implications of taxing individuals for whom Congress has allowed reorganization and a fresh start.

* Chapter 7 case law

Courts have distinguished abandonments in chapter 11 cases from those in chapter 7 cases.(29) Sec. 1398(f)(2) provides that transfers to the debtor at the termination of the estate are nontaxable, and chapter 7 case law has similarly treated abandonments during the administration of the chapter 7 case, applying a general principle to these "mid-stream transfers" that a tax liability follows the property back to the debtor.

For example, in Samore v. Olson (In re Olson),(30) the trustee abandoned encumbered real estate to the debtor well before termination of the chapter 7 case. The bankruptcy court held that the abandonment was not taxable, because the estate received no benefit of the kind required for a taxable sale or exchange. This reasoning does not reconcile with cases such as Yarbro,(31) which treated an abandonment as a sale.

The IRS's concurring position that a midstream abandonment is a nontaxable event to the estate is controversial, because it is inconsistent with Sec. 1398(f)(2), which provides that only transfers back to the debtor on estate termination are nonrecognition events.(32) Further, case law has held virtually every disposition of property (e.g., by gift, deed in lieu of foreclosure, conveyance or foreclosure) to be a taxable event.(33)

If the abandonment is nontaxable to the estate, the debtor will be liable for tax on the capital gain resulting from a later sale of the property.

Sec. 1398 Regulations

Not surprisingly, the IRS has applauded this result in chapter 7 cases and has issued regulations under Sec. 1398 to tax debtors, not their bankruptcy estates. Regs. Sec. 1.1398-1(d)(1) provides that a transfer by an estate to the debtor of an interest in a passive activity, prior passive activity or at-risk activity, if other than by sale or exchange, is not a disposition and is not taxable to the estate if the transfer occurs prior to estate termination. The transfers to which this rule applies include transfers from the estate to the debtor of exempt property and abandonments. However, if the estate transfers property of a type other than that specified in the regulations, such as property from a business in which the debtor actively participated, the estate would recognize gain.

Since the regulations do not address transfers from the estate to third parties, as is likely to occur in chapter 11, the result is not the same in cases under that chapter.

As was previously discussed, Lane held that the estate, not the debtor, is liable for capital gains tax when a creditor has the automatic stay lifted to pursue foreclosure. The regulations do not overrule this result. A conveyance resulting from a lifting of the stay is a sale or exchange, not an abandonment. The regulations do not recharacterize transactions in chapter 11 as "constructive abandonments" so as to make Regs. Sec. 1.1398-1(d)(1) applicable, indicating that the rules were not intended to overrule chapter 11 case law.

Finally, the regulations address accounting for tax attributes between the debtor and the bankruptcy estate. Prior to the regulations, it was not clear whether all the attributes that belonged to an individual would be available to offset gain incurred by a bankruptcy estate. Under Regs. Sec. 1.1398-1(c), the estate inherits the debtor's NOLs, charitable deduction carryovers, and suspended PALs and passive activity credits. In essence, the regulations update the Code to include PALs and other suspended losses that came into existence with the Tax Reform Act of 1986. However, the regulations' expanded list does not include investment interest carryovers, carryover of depletion or unused Sec. 179 expense amounts. Nor is it clear whether a trustee would have the right to make a step-up basis election or would be entitled to a FMV basis if the death of a debtor occurred during case administration.

Conclusion

The bankruptcy law's interest in revitalizing debtors conflicts directly with the Code's policy of generating a reliable and certain source of revenue. Despite this conflict in policies, tax professionals can greatly minimize taxation by careful timing of dispositions and through aggressive use of chapter 11.

(1)See Beulah B. Crane, 331 US 1, 14 (1947)(35 AFTR 776, 47-1 USTC [paragraph]9217); John F. Tufts, 461 US 300, 312 (1983)(51 AFTR2d 83-1132, 83-1 USTC [paragraph]9328). A recourse debt is one for which the taxpayer personally bears the risk of loss and is unprotected by third-party guarantee or contractual provision (e.g., a limited partnership agreement); with a nonrecourse liability, the lender may only look to foreclosure and sale of the collateral to recoup the debt. Although Sec. 108 may entitle a taxpayer to exclude COD income, the taxpayer cannot exclude gain that arises on a nonrecourse foreclosure transaction; with recourse liabilities, Sec. 108 does not prevent characterization of a foreclosure as part sale and part COD. See Rev. Rul. 90-16, 1990-1 CB 12 (the disposition of property secured by a recourse liability must be analyzed in accordance with the bifurcation method).

(2)11 USC (Bankruptcy Code) Section 362(a). However, the automatic stay does not stop a tax investigation or the issuance of notices of deficiency. See Sec. 6871(b)(2).

(3)Bankruptcy Code Section 505. Unlike the Tax Court, in which assessments are presumptively correct, in Bankruptcy Court, the burden of proof falls on the government.

(4)See Regs. Secs. 1.1398-1 and -2; Samore v. Olson (In re Olson), 100 B.R. 458 (Bankr. N.D. Iowa 1989), aff'd, 121 B.R. 346 (N.D. Iowa 1990), aff'd, 930 F2d 6 (8th Cir. 1991)(67 AFTR2d 91-851, 91-1 USTC [paragraph]50,163); In re A.J. Lane & Co., 133 B.R. 264 (Bankr. DC Mass. 1991); In re Rubin, 154 B.R. 897 (Bankr. DC Md. 1992).

(5)See Bankruptcy Code Sections 523(a)(1)(A) and 507(a)(7)(A)(i); Sec. 1398(g) and (i) (providing that losses remain with a bankruptcy estate until the end of the proceeding).

(6)See Bankruptcy Code Sections 503(b)(1)(A) and 507(a)(1).

(7)Note 1.

(8)Id.

(9)See note 1. In the partnership context, Sec. 752 and the regulations thereunder provide a detailed framework for distinguishing between recourse and nonrecourse debt that is a useful starting point for Sec. 108 purposes.

(10)See Rev. Rul. 90-16, note 1; Jack C. Chilingirian, 918 F2d 1251 (6th Cir. 1990)(66 AFTR2d 90-5901, 90-2 USTC [paragraph]50,569), aff'g TC Memo 1986-463. Ascertaining a property's FMV is particularly important in part sale, part COD transactions, and is difficult to ascertain when a lender agrees to take back property without an open market sale. Properties sold at foreclosure for a distress price can be equally problematic. Thus, the debtor should procure an appraisal of the property prior to the transaction to justify the value used for Sec. 108 purposes.

(11)See Sec. 108(e)(5). See also Plutzer, "Avoiding Gain When Mortgage Payments Cannot Be Met," 19 Taxation for Lawyers 288 (March/April 1991).

(12)Sec. 1398(g) provides that these attributes pass from the debtor to the bankruptcy estate. See Regs. Sec. 1.1398-1(c).

(13)Uncertainty over whether Sec. 108 applies to the discharge of a nonrecourse liability complicates the computation of COD income. Despite contradictory authority, the majority rule is that Sec. 108 does not apply to income realized on a disposition of property subject to a nonrecourse debt. See Rev. Rul. 73-36, 1973-1 CB 372; compare Fulton Gold Corp., 31 BTA 519 (1934) (no COD income), with Herbert Gershowitz, 88 TC 984 (1987) (COD income). In Rev. Rul. 91-31, 1991-1 CB 19, the Service concluded that the reduction of a nonrecourse liability results in COD income under Sec. 61(a)(12), but did not discuss Sec. 108. Rev. Rul. 92-53, 1992-2 CB 48, concluded that a nonrecourse liability is not taken into account in determining a taxpayer's insolvency to the extent the debt is not discharged. See Schmalz, et al., "IRS Insists That Reduction or Cancellation of Nonrecourse Debt Always Results in Income," 75 Journal of Taxation 68 (Aug. 1991).

(14)Sec. 108 does not apply to properties in which the taxpayer has equity; thus, capital gain will be generated that can be offset only by suspended losses.

(15)Administrative expenses are deductions allowed to the estate for the actual and necessary costs of preserving the estate, including wages, salaries and legal and accounting fees incurred after the filing of the petition. See Sec. 1398(h) and Bank uptcy Code Section 503(b)(1)(A).

(16)Rev. Rul. 72-387, 1972-2 CB 632.

(17)Bankruptcy Code Section 554 authorizes abandonment of property when the property poses a burden to the bankruptcy estate. A trustee will abandon property to the debtor if the property is an asset exempt from distribution in bankruptcy or if it lacks potential to realize value for the estate. At least one court has held that if there is a ready buyer for property sought to be abandoned, the property is not a burden to the estate. See Morgan v. K.C. Machine & Tool Co. (In re K.C. Machine & Tool Co.), 816 F2d 238 (6th Cir. 1987).

(18)This is the majority view, and has been the subject of debate. See Lane, note 4, and text accompanying note 25.

(19)Every chapter 7 bankruptcy involves a trustee who is responsible for liquidating estate assets and paying dividends to creditors, while, in chapter 11, the debtor remains in control of the estate and will attempt to reorganize or liquidate it.

(20)See, e.g., Wallace, "Is a Midstream Abandonment of Property by a Bankruptcy Trustee Taxable to the Estate?," 77 Journal of Taxation 26 (July 1992).

(21)Numerous cases have interpreted the Bankruptcy Code's abandonment provisions in a manner that furthers the "fresh start" policy. See, e.g., Local Loan Co. v. Hunt, 292 US 234, 244-45 (1934) (fresh start policy invalidates debtor's assignment of future wages); In re Lindberg, 735 F2d 1087, 1090 (8th Cir. 1984) (fresh start policy permits debtors to claim a different homestead exemption at time of conversion of case from chapter 13 to chapter 7).

(22)Bankruptcy Code Section 349(b)(3) provides that dismissal revests the property of the estate in the entity in which such property was vested immediately before the commencement of the case.

(23)See, e.g., Frank L. Laport, 671 F2d 1028 (7th Cir. 1982)(49 AFTR2d 82-793, 82-1 USTC [paragraph]9230); Lester J. Arkin, 76 TC 1048 (1981); Eugene L. Freeland, 74 TC 970 (1980).

(24)Bankruptcy Code Section 362(d)(2) gives a secured creditor the right to seek relief from the automatic stay by demonstrating the debtor's lack of equity in the property and that the property is not necessary to an effective reorganization.

(25)Note 4.

(26)Note 4.

(27)C. Stephen Babin, 23 F2d 1032 (6th Cir. 1994)(73 AFTR2d 94-1961, 94-1 USTC [paragraph]50,224). See Pollack, "Sec. 108(a)(1) Excluded COD Income," 26 The Tax Adviser 259 (May 1995).

(28)Rev. Rul. 71-301, 1971-2 CB 257.

(29)See, e.g., In re McGowan, 95 B.R. 104 (Bankr. DC Iowa 1988); Olson, 8th Cir., note 4.

(30)Note 4.

(31)James W. Yarbro, 737 F2d 479 (5th Cir. 1984)(54 AFTR2d 84-5774, 84-2 USTC [paragraph]9691), cert. denied.

(32)See Wallace, note 20.

(33)See, e.g., Godfrey Hammel, 311 US 504 (1941)(24 AFTR 1082, 41-1 USTC [paragraph]9169); Nebraska Bridge Supply & Labor Co., 312 US 666 (1941)(25 AFTR 1235, 41-1 USTC [paragraph]9361).

RELATED ARTICLE: Abbreviations Commonly Used in The Tax Adviser

TTA           The Tax Adviser
aff'g         affirming
AFTR2d        American Federal Tax Reports, second
              series (Research Institute of America)
Ann.          IRS Announcement
CB            Cumulative Bulletin
Cir.          Court of Appeals
Cl. Ct.       Claims Court
COBRA         Consolidated Omnibus Budget
              Reconciliation Act of 1985
Cong. Rec.    Congressional Record
DC            District Court
DRA           Deficit Reduction Act of 1984
ERISA         Employee Retirement Income
              Security Act of 1974
ERTA          Economic Recovery Tax Act of 1981
Fed. Reg.     Federal Register
F2d           Federal Reports, second series
F3d           Federal Reports, third series
F Supp        Federal Supplement
GCM           General Counsel Memorandum
H. Rep.       House Ways and Means Committee
              Report
IR            Internal Revenue News Release
IRB           Internal Revenue Bulletin
PL            Public Law
Regs. Sec.    Treasury Regulation
Rev. Proc.    Revenue Procedure
Rev. Rul.     Revenue Ruling
rev'g         reversing
RRA           Revenue Reconciliation Act of 1993
Sec.          Section (refers to the Internal
              Revenue Code of 1986 unless
              otherwise indicated)
S. Rep.       Senate Finance Committee Report
SSRA          Subchapter S Revision Act of 1982
Sup. Ct.      Supreme Court
TAM           Technical Advice Memorandum
TAMRA         Technical and Miscellaneous
              Revenue Act of 1988
TC            Tax Court (regular decision)
TC Memo       Tax Court (memorandum decision)
TD            Treasury Decision
TEFRA         Tax Equity and Fiscal
              Responsibility Act of 1982
TRA           Tax Reform Act of 1986
USTC          United States Tax Cases
              (Commerce Clearing House)