Revenue Ruling 91-31

1991-1 C.B. 19 (1991)

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Revenue Ruling 91-31

Internal Revenue Service
1991-1 C.B. 19 (1991)

Facts

In 1988, an individual taxpayer borrowed $1 million from a third-party lender and signed a $1 million note payable to the lender. The individual had no personal liability on the note, meaning that the debt was nonrecourse debt. Instead, the note was secured by an office building, valued at $1 million, that the individual had acquired from another entity using the proceeds of the financing. In 1989, the value of the office building was $800,000, and the outstanding principal on the note was $1 million. The lender agreed to modify the note’s terms by reducing the principal amount of the note to $800,000. The Internal Revenue Service (IRS) issued a revenue ruling to clarify whether the lender’s reduction in the principal amount of the undersecured nonrecourse debt owed by the individual resulted in the realization of discharge-of-indebtedness income to the individual or in the reduction of the basis in the office building securing the debt.

Rule of Law

Issue

Holding and Reasoning ()

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