James and Laura Gehl (plaintiffs) could no longer repay a loan for which their farm provided collateral. To restructure the loan, the Gehls transferred most of the farm’s land to their lender, who provided an excess valuation by assessing the value of the land at far more than the Gehls’ adjusted basis in the land. The lender reduced the Gehls’ loan balance accordingly. Subsequently, the lender forgave the remaining balance as a write-off. The commissioner of internal revenue (commissioner) (defendant) treated the write-off as tax-exempt income from the discharge of indebtedness. However, the commissioner determined that the excess valuation was a taxable gain. The Gehls filed a petition challenging the commissioner’s determination. The Gehls contended that because they used both the write-off and the excess valuation solely to repay the loan, and remained insolvent after they did so, both the write-off and the excess valuation were tax-exempt. The tax court ruled against the Gehls, who appealed.