                        T.C. Memo. 2004-150



                     UNITED STATES TAX COURT



                ESTATE OF JOSE MARTINEZ, DECEASED,
   PATRICK G. MARTINEZ, PERSONAL REPRESENTATIVE, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 6641-02.             Filed June 22, 2004.


     Robert B. Scarlett, for petitioner.

     Bradley C. Plovan, for respondent.



                        MEMORANDUM OPINION


     THORNTON, Judge:   Mr. Jose Martinez (decedent) was a general

partner in a partnership.   Decedent personally guaranteed certain

of the partnership’s debts.   After the partnership filed for

bankruptcy under chapter 11, the bankruptcy court discharged

decedent’s personal liability with respect to the partnership’s

debts and decedent’s personal guaranty thereof.   The issue for
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decision is whether the resulting discharge of indebtedness

income is excludable from gross income pursuant to section 108.1

We hold that it is.2

                            Background

     The parties submitted this case fully stipulated pursuant to

Rule 122.   The stipulations of the parties, with accompanying

exhibits, are incorporated herein by this reference.

     On October 10, 2000, decedent died.   His estate was

administered by Patrick Martinez and was closed on June 19, 2001.

When the petition was filed, Patrick Martinez resided in

Timonium, Maryland.

The Partnership’s Debts
     At all relevant times, decedent was a general partner in

Notchcliff Associates (the partnership), a Maryland general

partnership that was engaged in the business of developing a

continuing care facility.

     On April 9, 1985, the partnership borrowed $18 million from
The Commercial Bank (the bank) for use in its business.     On that

same date, decedent and other general partners of the partnership

executed a personal guaranty agreement, whereby they jointly and




     1
       Unless otherwise indicated, section references are to the
Internal Revenue Code for the taxable year at issue, and Rule
references are to the Tax Court Rules of Practice and Procedure.
     2
       Essentially identical issues are presented in three other
cases also decided today: Ralph J. and Joan B. Mirarchi, docket
No. 6638-02; Chester L. Price, docket No. 6639-02; and Jose
Gracia and Nancy Gracia, docket No. 6642-02.
                                - 3 -

severally guaranteed this loan.    On May 29, 1987, the partnership

borrowed an additional $2,956,000 from the bank.3

The Partnership’s Bankruptcy Case

     On June 30, 1988, the partnership initiated a bankruptcy

case by filing a voluntary chapter 11 bankruptcy petition in the

U.S. Bankruptcy Court for the District of Maryland (the

bankruptcy court).    On November 13, 1989, the bankruptcy court

appointed a chapter 11 trustee (the trustee) to administer the

partnership’s assets and to develop an orderly liquidation and

sale of the assets.

Decedent’s Contribution Agreement

     The trustee negotiated with the partnership’s general

partners, including decedent, to obtain some contribution from

them to pay the partnership’s debts.    The trustee filed a

reorganization plan which, among other things, proposed a means

whereby general partners of the partnership could contribute to a

partnership release fund as a means of resolving the

partnership’s claims and other creditor’s claims against its

general partners.    On November 27, 1990, the bankruptcy court

confirmed the plan.

     Thereafter, the trustee reached a negotiated settlement with

some of the general partners, including decedent, whereby in

exchange for paying agreed-upon sums to the partnership’s

bankruptcy estate, the contributing partners would be discharged


     3
       The Apr. 9, 1985, personal guaranty agreement also applied
to this loan.
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from liability as permitted by the confirmed bankruptcy plan.    On

September 15, 1995, decedent executed a contribution agreement

and pursuant to its terms contributed $15,000 to the

partnership’s bankruptcy estate in exchange for release of “all

claims or potential claims of creditors against * * * [decedent]

arising out of or related to” the partnership.

      On December 19, 1995, the bankruptcy court entered an order

approving the contribution agreement.    In its order, the

bankruptcy court specifically discharged and released decedent

from any and all liability to the trustee and the bank arising

out of or relating to the partnership, decedent’s status as a

general partner in the partnership, and the April 9, 1985,

personal guaranty agreement.   In addition, the bankruptcy court’s

order released decedent from “the claims or potential claims of

all creditors” of the partnership.     The bankruptcy court further

ordered that decedent “is subject to the jurisdiction of the

Bankruptcy Court.”

Tax Reporting

     For the 1995 tax year, the partnership issued decedent a

Schedule K-1, Partner’s Share of Income, Credits, Deductions,

etc., allocating to him $397,640 of discharge of indebtedness

income.   Decedent excluded this entire amount from his gross

income as reported on his 1995 Federal income tax return.
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Notice of Deficiency

     By notice of deficiency, respondent determined that $397,640

of discharged debt should be included in decedent’s 1995 income.

                               Discussion

     Generally, discharge of indebtedness gives rise to gross

income to the obligor.    Sec. 61(a)(12); see Gitlitz v.

Commissioner, 531 U.S. 206, 213 (2001).      Section 108 provides

certain exceptions to this general rule.     Pursuant to one of

these exceptions, income from discharge of indebtedness is

excluded from gross income if “the discharge occurs in a title 11

case”.    Sec. 108(a)(1)(A).   This provision is applied at the

partner level.    Sec. 108(d)(6).   Consequently, the relevant

question is whether decedent’s debt (as opposed to the

partnership’s debt) was discharged “in a title 11 case.”

     For purposes of section 108, a “title 11 case” is defined as

“a case under title 11 of the United States Code (relating to

bankruptcy), but only if the taxpayer is under the jurisdiction

of the court in such case and the discharge of indebtedness is

granted by the court or is pursuant to a plan approved by the

court.”    Sec. 108(d)(2).

     The partnership’s chapter 11 bankruptcy was a case under

title 11 of the United States Code.      See 11 U.S.C. ch. 11 (2000).

Pursuant to its December 19, 1995, order, the bankruptcy court

discharged and released decedent from all liability to the

trustee, the bank, and all other creditors that might have claims

arising from or relating to the partnership, decedent’s status as
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a general partner in the partnership, and the April 9, 1985,

personal guaranty agreement.   In the same order, the bankruptcy

court explicitly asserted its jurisdiction over decedent for this

purpose.   Giving due regard to principles of judicial comity, we

discern no reason to second-guess the bankruptcy court’s

assertion of jurisdiction over decedent in the partnership’s

chapter 11 bankruptcy case.    See 28 U.S.C. secs. 151, 157, 1334

(2000).

     We conclude that decedent’s debts in question were

discharged “in a title 11 case” within the meaning of section

108(d)(2).   Accordingly, we hold that decedent’s discharge of

indebtedness income is excludable from gross income pursuant to

section 108(a)(1)(A).

     We have considered all arguments raised by the parties.

Arguments not addressed herein are moot, irrelevant, or without

merit.

     To reflect the foregoing,

                                              Decision will be entered

                                         for petitioner.
