Revenue Ruling 90-16
Internal Revenue Service
1990-1 C.B. 12 (1990)
A taxpayer was the owner and developer of a residential subdivision. The taxpayer had financed the development by obtaining a loan from a bank. The taxpayer was unconditionally liable for repaying the debt, making the debt recourse debt. The debt was secured by a mortgage on the subdivision. The taxpayer subsequently became insolvent and defaulted on the debt. However, the taxpayer agreed to transfer the subdivision property to the bank in exchange for the bank releasing the taxpayer from liability for the amount still owed on the debt. For purposes of discussion, the fair market value of the subdivision at the time of the transfer was $10,000x. The taxpayer’s adjusted basis in the subdivision was $8,000x, and the amount due on the debt was $12,000x. The taxpayer remained insolvent after the transfer. The Internal Revenue Service issued a revenue ruling to clarify the tax consequences to the taxpayer from the transfer of the subdivision.
Rule of Law
Holding and Reasoning ()
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