                        T.C. Memo. 2004-148



                     UNITED STATES TAX COURT



          RALPH J. AND JOAN B. MIRARCHI, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 6638-02.              Filed June 22, 2004.


     William M. Davidow, Jr., for petitioners.

     Bradley C. Plovan, for respondent.



                        MEMORANDUM OPINION


     THORNTON, Judge:   Petitioner husband (petitioner) was a

general partner in a partnership.   Petitioner personally

guaranteed certain of the partnership’s debts.   After the

partnership filed for bankruptcy under chapter 11, the bankruptcy

court discharged petitioner’s personal liability with respect to

the partnership’s debts and petitioner’s personal guaranty
                                - 2 -

thereof.    The issue for decision is whether the resulting

discharge of indebtedness income is excludable from petitioners’

1995 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.

     When petitioners filed their petition, they resided in

Fallston, Maryland.

The Partnership’s Debts

     At all relevant times, petitioner 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, petitioner and other general partners of the

partnership executed a personal guaranty agreement, whereby they




     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: Chester L. Price, docket No. 6639-02;
Jose Martinez, Deceased, docket No. 6641-02; and Jose and Nancy
Gracia, docket No. 6642-02.
                                - 3 -

jointly and 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.

Petitioner’s Contribution Agreement

     The trustee negotiated with the partnership’s general

partners, including petitioner, 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 creditors’ 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 petitioner, whereby in

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




     3
       The Apr. 9, 1985, personal guaranty agreement also applied
to this loan.
                               - 4 -

bankruptcy estate, the contributing partners would be discharged

from liability as permitted by the

confirmed bankruptcy plan.   Petitioner executed a contribution

agreement and pursuant to its terms contributed $15,530 to the

partnership’s bankruptcy estate in exchange for release of claims

and potential claims of all creditors against petitioner 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 petitioner

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

out of or relating to the partnership, petitioner’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 petitioner from “the claims or potential claims of

all creditors” of the partnership.     The bankruptcy court further

ordered that petitioner “is subject to the jurisdiction of the

Bankruptcy Court.”

Tax Reporting

     For the 1995 tax year, the partnership issued petitioner a

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

etc., allocating to him $405,815 of discharge of indebtedness

income.   Petitioners excluded $380,699 of this amount from their
                                  - 5 -

gross income as reported on their joint 1995 Federal income tax

return.4

Notice of Deficiency

     By notice of deficiency, respondent determined that $314,257

of the $405,815 discharged debt should be included in

petitioners’ 1995 income.5

                                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 petitioner’s debt (as opposed to the

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


     4
       Petitioners attached to their 1995 Federal income tax
return Form 982, Reduction of Tax Attributes Due to Discharge of
Indebtedness (and Section 1082 Basis Adjustment) (Form 982). On
the Form 982, petitioners excluded $380,699 of petitioner
husband’s allocable share of discharged debt pursuant to the
insolvency exception provided in sec. 108(a)(1)(B) and (3).
Petitioners challenge the treatment of this discharged debt only
to the extent of respondent’s deficiency determination set forth
in the notice of deficiency.
     5
       Respondent determined that petitioners were insolvent to
the extent of $91,558 immediately before Notchcliff Associates’
debt was discharged and that, accordingly, petitioners were
entitled to exclude from gross income $91,558 of the discharged
debt pursuant to sec. 108(a)(1)(B) and (3).
                                - 6 -

     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 petitioner from all liability to the

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

arising from or relating to the partnership, petitioner’s status

as 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 petitioner 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 petitioner in the partnership’s

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

(2000).

     We conclude that petitioner’s debts in question were

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

108(d)(2).   Accordingly, we hold that petitioner’s discharge of
                                 - 7 -

indebtedness income is excludable from gross income pursuant to

section 108(a)(1)(A).6

     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 petitioners.




     6
       In their prayer for relief, petitioners requested the
Court to redetermine their deficiency. Petitioners have not
requested the Court to determine the existence of any overpayment
resulting from their inclusion of $25,116 of discharge of
indebtedness in gross income. We deem petitioners to have waived
any claim to any overpayment. See Rule 34(b)(6); Horn v.
Commissioner, 90 T.C. 908, 944 (1988).
