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INCOME TAX PROJECT 1 (DRAFT ON CANCELLATION OF INDEBTEDNESS, October 28, 1949)

handle is hein.ali/aliftp0017 and id is 1 raw text is: October 28. 1949

DRAFT ON CANCELLATION OF INDEBTEDNESS
(Submitted to the members of the Policy Committee for approval before
finalizing in Preliminary Draft No. 5, which will, in turn, be submit-
ted to the Advisory Group.)
SECTION XlO0. CANCELLATION OF INDEBTEDNESS
(a) Definition.--For the purposes of this section, cancellation of indebted-
ness means extinction by any means of an unconditional monetary obligation,
or the [remedy for its nonpayment) [right of action thereoij1, which
(1) was voluntarily assumed by a taxpayer in an arm's length transac-
tion in the ordinary course of business in return for assets [or
servicesj received as a bargained-for consideration which has not
been included in the gross income of the taxpayer or served to reduce
a deduction from gross income or the cost of goods sold, bat the
adequacy of the consideration shall not affect the application of
this section except as it is relevant to the presence of amortizable
discount or premium; or
(2) was involuntarily incurred by a taxpayer in substitution for a
monetary obligation which merges therein, and the extinction of which
would have been a cancellation of indebtedness within this definition;
or
(3) is not a personal liability of a taxpayer, but is merely a lien
on property owned by him subject to the obligation where the amount
of the obligation has not been reflected in computing the basis of
such property in the hands of the taxpayer or of a [predecessor In
title] [transferor, donor, or Grantor! from whom the taxpayer took
a substituted basis [as defined in Section X       (present Secticn
113(b)(2)j, provided that the original incurrence of the obligation
was in a transaction which would bring it within paragraph (1) above
except for the absence of personal assumption of liability.
(b) Amount of Income Realized.--
(1) Except as provided in paragraph (2) below, and subject to the
optional exclusion in subsection (d) below, income [includible in

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