Tufts and the Evolution of Debt-Discharge Theory

Abstract

This 1992 article first explores how the concept of - 61(a)(12) debt-discharge income evolved over time from a "balance sheet improvement" rationale to one recognizing that what is properly measured under - 61(a)(12) is the prior receipt that would have been a wealth accession at that time if not for the absolute obligation to repay (without regard to balance sheet consequences). The article then goes on to explore how the Supreme Court created unnecessary mischief in Tufts v. Commissioner, 461 U.S. 300 (1983), by failing to recognize the critical differences between - 1001 "gain" or "loss" and - 61(a)(12) debt-discharge income.

Keywords: debt-discharge income, COD income, Tufts, recourse debt, nonrecourse debt

JEL Classification: H20, H24