David Zarin (plaintiff) applied for and received a credit line from Resorts International Hotel (Resorts), which ran a gambling establishment in New Jersey. Under the terms of the line of credit, Resorts advanced chips to Zarin, which he used to gamble at the hotel. Zarin soon became an excessive gambler and received regular increases on his credit limit. By November 1979, his line of credit had a limit of $200,000. That year, the Casino Control Commissioner issued an Emergency Order that effectively prohibited casinos from making extensions of credit to Zarin. Despite this, Resorts continued to increase Zarin’s credit line. In 1980, Zarin had amassed a debt of $3,435,000. He wrote personal checks to Resorts to pay the debt, but the checks bounced. As a result, Resorts sued Zarin to recover the $3,435,000. Zarin argued Resorts could not recover the amount owed because New Jersey regulations prohibited it. The parties eventually settled, agreeing that Zarin owed only $500,000. The Commissioner argued that the reduction in Zarin’s debt amounting to $2,935,000 was a discharge of indebtedness, and was therefore income to Zarin. The Tax Court agreed.