Reference no: EM132784929
Question: Please read and analyze the following case and write a memo to me. The memo should be no more then 2 pages, using 12 point font. You don't need to send me copies of the court cases, etc.
Lorissa owes Waterbury State Bank $200,000. During the current year, she is unable to make the required payments on the loan and negotiates the following terms to extinguish the debt. Lorissa transfers to Waterbury ownership of investment property with a value of $90,000 and a basis of $55,000, and common stock with a value of $50,000 and a basis of $70,000. Lorissa also pays Waterbury $5,000 cash, and Waterbury forgives the remaining amount of debt. Before the agreement, Lorissa's assets are $290,000, and her liabilities are $440,000.
Read and analyze the following authorities and determine how much gross income Lorissa has from the extinguishment of the debt:
• Sec. 108.
• Reg. Sec. 1.61-12.
• Reg. Sec. 1.1001-2.
• Julian S. Danenberg, 73 T.C. 370 (1979).
• James J. Gehl, 50 F.3d 12 (8th Cir., 1995) affg., 102 T.C. 784(1994).
A couple of suggestions:
-
ReadCode Sec. 108 carefully. It is long. Read it with the tax issue(s) in mind. Some parts of Sec.108 do not apply to the case.
-There are a few sub-issues that you must address before you can determine the main issue
-how much income Lorissa must recognize from the forgiveness of debt.
-It may be helpful to read some of the RIA analysis in the Federal Tax Coordinator if you have trouble understanding the issues.
-Spelling, grammar, etc. count.
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