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US Tax Law (Section and regulations)
Question 1
The primary authorities include code section 61(a) 12 on discharge indebtedness, section
108 on debt cancellation, sections 1245 and 1250 on appreciable property in business.
According to the US code 61(a) 12 concerning income from indebtedness, a general
indebtedness discharge in part or in whole may happen during income realization. For instance
when a person provides some service for the creditors who considering the case has the debt
cancelled thereof; this debtor thus may realize income as compensation as debt that amounts
from these services. Taxpayers realize income by purchase or payment of their obligations which
is less than the face value. Generally, when a certain shareholder from the corporations that are
indebted to these shareholders, cancel their debt gratuitously, the cancelation becomes part of
corporation’s capital amount, to the debt’s principal extension. According to section 108,
generally, gross income is not inclusive of an amount which is includible in the income due to
discharge in part or in whole of a tax payer’s indebtedness if;
1. Such discharge happens from title II case, which relates to bankruptcy when the
taxpayers fall under the court’s jurisdiction and such indebtedness discharge is granted by
a certain court,
2. The discharge happens from the insolvency of the taxpayer,
3. The discharged indebtedness is a farm indebtedness that has qualified,
