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Revenue Ruling 84-176

1984-2 C.B. 34 (1984)

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Revenue Ruling 84-176

Internal Revenue Service
1984-2 C.B. 34 (1984)

Facts

In 1981, a wholesale distributor entered into two contracts with a seller of goods. Under the contracts, the distributor ordered goods the seller promised to ship in six lots between March and August of 1982. After the seller shipped the first lot and part of the second lot, the seller refused to ship the rest of the distributor’s order. At the time of the seller’s refusal, the distributor owed the seller $1,000x for the goods the seller had already shipped. The distributor refused to pay the money owed, and the seller sued the distributor to recover. The distributor counterclaimed in the seller’s suit, seeking damages for lost profits suffered due to the seller’s alleged breach of the contracts. The distributor and the seller ultimately settled the dispute in late 1982. In the settlement, the distributor agreed to pay the seller $500x of the outstanding $1,000x. The seller agreed to forgive the remaining $500x owed by the distributor in exchange for the distributor’s release of the breach-of-contract counterclaim. The Internal Revenue Service issued a revenue ruling regarding whether the $500x forgiven by the seller constituted discharge-of-indebtedness income to the distributor that was subject to exclusion from the distributor’s gross income under § 108 of the Internal Revenue Code (the Code).

Rule of Law

Issue

Holding and Reasoning ()

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