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Edited version of private advice

Authorisation Number: 1051719185031

Date of advice: 20 July 2020

Ruling

Subject: Commercial debt forgiveness

Question 1

Will the commercial debt forgiveness rules in Division 245 of the Income Tax Assessment Act 1997 apply to the Trustee of the Trust when you forgive the loan which you provided to the Trustee?

Answer

Yes

Question 2

Will a CGT event happen to the Trustee of the Trust when you forgive the loan which you provided to the Trustee?

Answer

Question 3

Will a CGT event happen to you when you forgive the loan which you provided to the Trustee of the Trust?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June XXXX

The scheme commences on:

20 April XXXX

Relevant facts and circumstances

Background of the Trust

The Trust was established by Deed dated 30 March XXXX with Company X as the Trustee.

You are the controller of Company X being the only shareholder and director of the company since its inception.

The Trustee of the Trust conducted a retail business on behalf of the Trust. The shop was physically closed in February XXXX and the Trustee ultimately ceased trading the following year when you as the owner of the business eventually caught up with all the Trust's debts.

Despite the Trustee ceased trading, tax losses of the Trust continued to accumulate due to interest expenses payable on the loan and certain costs and charges and other incidentals.

The Trust has accumulated tax losses of a certain amount as at 30 June XXXX.

Company X never traded as a company itself and had acted only as Trustee of the Trust. You decided to deregister the company to save on the ASIC fees.

You, being the Appointor of the Trust, have the power to remove and/ or replace the Trustee and appoint a new trustee.

Following removal and deregistration of Company X, you effectively appointed yourself as the replacement trustee of the Trust.

You are the primary beneficiary of the Trust including your children and remoter issue.

Company X, prior to its deregistration, was also a general beneficiary of the Trust.

The Loan

A certification letter from your accountant showed that you lent a six-figure sum to the Trust at the start of the business. The letter also stated that you paid business expenses which were recorded in the books of the Trust forming part of the loan.

You confirmed that many of the trust expenses were paid directly from your private bank account to the supplier. These expenses/ payments were all recorded in the books of the Trust forming part of the loan.

The initial injection of funds into the business and payments of business expenses were reflected in the Trust's financial statements as loans provided by you to the Trust.

The source of your personal funds came from property settlements.

You have a 'loan agreement' with the Trustee of the Trust that the loan interest is at market rate to be reviewed every year and the repayment is to be made by the borrower within 30 days upon demand by you (the lender). You provided a loan schedule showing quarterly interests for the loan.

The accumulated tax losses of the Trust as at 30 June XXXX is roughly the amount of the loans the Trust has owed you as of that date.

Reduction of the loan

You applied for unemployment benefit and in order to meet the Centrelink requirements, you're required to reduce the amount of your loan receivable from the Trust to a certain amount.

You as Trustee of the Trust resolved as recorded in the trust minutes that the loan liability of the Trust would be reduced to a certain amount.

In order to reduce the amount of your loan receivable:

· you stopped the loan interest payable by the Trust to you from a certain date and you amended the Trust tax return for the relevant income year to reflect the reduction of interest payable on the loan; and

· you as the lender would waive or forgive a certain amount of the Trust's debt.

No consideration will be given for the forgiveness of the debt owed by the Trust.

Relevant legislative provisions

Income Tax Assessment Act 1997

section 102-20

subsection 102-25(1)

section 104-25

section 108-5

section 110-25

section 110-35

subsection 110-55(2)

subsection 116-20(1)

subsection 116-30(1)

subsection 116-30(2)

subsection 116-30(3A)

subsection 995-1(1)

Division 245

Income Tax Assessment Act 1936

section 170

subsection 170(7)

Taxation Administration Act 1953

Schedule 1

section 288-25

Other references

CGT Determination Number 2 TD 2

CGT Determination Number 3 TD 3

Taxation Ruling TR 95/25

Reasons for decision

Question 1

All legislative references are to the Income Tax Assessment Act 1997 unless otherwise stated.

Division 245 applies to any commercial debt (or part of a commercial debt) you owe that is forgiven - subsection 245-2(1).

The net forgiven amount of a debt is worked out by reducing the value of your forgiven debt by - subsection 245-2(2):

a) any consideration you provided for the forgiveness; and

b) any amounts that this Act already brings to account because of the forgiveness.

The net forgiven amounts of all your forgiven debts in an income year are added up. This total net forgiven amount is applied to reduce the following amounts (in the following order) - subsection 245-2(3):

1) your tax losses from previous income years;

2) your net capital losses from previous income years;

3) the deductions you would otherwise get in the income year, or in a later year, because of expenditure from a previous year (e.g. the capital allowance deductions you would get for the cost of a depreciating asset);

4) the cost bases of your CGT assets.

Any unapplied total net forgiven amount is disregarded - subsection 245-2(4).

What is a commercial debt?

A debt is a commercial debt if - section 245-10:

a) the whole or any part of interest, or of an amount in the nature of interest, paid or payable by you in respect of the debt is an allowable deduction to you; or

b) interest, or an amount in the nature of interest, is not payable by you in respect of the debt but, had interest or such an amount been payable, the whole or any part of the interest or amount could have been deducted by you; or

c) interest or an amount mentioned in paragraph (a) or (b) could have been deducted by you apart from the operation of a provision of this Act (other than paragraphs 8-1(2) (a), (b) and (c)) that has the effect of preventing a deduction.

Paragraphs 8-1(2) (a), (b) and (c) prevent deductions for capital, private or domestic outgoings and for outgoings relating to exempt income or non-assessable non-exempt income.

Deductibility of interest

Whether interest has been incurred in the course of gaining or producing assessable income generally depends on the purpose of the borrowing and the use to which the borrowed funds are put. Where a borrowing relates to expenses of an assessable income producing activity, the interest on the borrowing is considered to have been incurred in the course of gaining or producing assessable income and is therefore deductible under section 8-1. The principles for determining whether a trust is entitled to a deduction in respect of interest on borrowings are generally the same as for other taxpayers - see Taxation Ruling TR 95/25.

What constitutes forgiveness of a debt?

A debt is forgiven if and when:

· the debtor's obligation to pay the debt is released or waived, or is otherwise extinguished other than by repaying the debt in full - paragraph 245-35(a); and

· the period within which the creditor is entitled to sue for the recovery of the debt ends, because of the operation of a statute of limitations, without the debt having been paid - paragraph 245-35(b).

Section 245-40 outlines the following circumstances where the forgiveness of a debt is not caught by Division 245:

(i) a forgiveness of a debt that is a fringe benefit

(ii) a debt that has been or will be included in the debtor's assessable income (e.g. a loan that is a deemed dividend)

(iii) a forgiveness effected under an Act relating to bankruptcy

(iv) a forgiveness effected by will

(v) a forgiveness for reasons of natural love and affection, and

(vi) a debt that is a tax related liability or civil penalty.

A forgiveness effected under an Act relating to bankruptcy is excluded from the application of Division 245. At present there is only one Act relating to bankruptcy, i.e. the Bankruptcy Act 1966 and therefore this exclusion is only applicable to individuals.

Working out the value of a debt

Subsection 245-55(1) provides that the value of your debt at the time (the forgiveness time) when it is forgiven is the amount that would have been its market value (considered as an asset of the creditor) at the forgiveness time, assuming that:

a) when you incurred the debt, you were able to pay all your debts (including that one) as and when they fell due; and

b) your capacity to pay the debt is the same at the forgiveness time as when you incurred it.

Subsection 245-55(2) provides the value of the debt at the forgiveness time is the sum of the following amounts, if that sum is less than the amount applicable under subsection (1):

a) what would have been the amount applicable under subsection (1) if there had been no change, from the time the debt was incurred until the forgiveness time, in any rate of interest, that affects the market value of the debt;

b) each amount:

(i) that you have deducted or can deduct as a result of the forgiveness of the debt; and

(ii) that is attributable to such a change.

Subsection 245-55(3) relevantly provides that paragraph (1)(a) does not apply to the debt if:

a) the creditor was an Australian resident at the forgiveness time; and

b) you and the creditor were not dealing with each other at arm's length in respect of you incurring the debt; and

c) the debt was not a moneylending debt.

Gross forgiven amount of a debt

The gross forgiven amount of a debt, (if section 245-65 does not apply to the debt), is the value of the debt when it was forgiven (worked out under section 245-55) - paragraph 245-75(1)(a).

If the value of the debt when it was forgiven is equal to or less than the amount offset, there is no gross forgiven amount in respect of the debt - paragraph 245-75(2)(a).

Accordingly, the rules in Subdivisions 245-D to 245-F on how to work out the net forgiven amount of a debt and how to treat it, do not apply in respect of the debt - paragraph 245-75(2)(b).

Section 245-65 refers to amount offset against amount of debt. The table in subsection 245-65(1) explains how to work out the amount (if any) that is offset against the value of a debt when it is forgiven. Reference to 'money lending debt' in the table is reference to a debt resulting from a loan of money made in the ordinary course of a creditor's money lending business - see definition of the term in subsection 995-1(1).

Rules in Subdivision 245-E

Subsection 245-105(1) provides that your total net forgiven amount for the forgiveness income year is the total of the net forgiven amounts of all your debts that are forgiven in that year.

Subsection 245-105(2) provides that your total net forgiven amount is applied, in accordance with sections 245-115 to 245-195, for the forgiveness income year.

Application of net forgiven amounts

1. Reduction of tax losses

Section 245-115 provides that the total net forgiven amount is applied first, to the maximum extent possible, in reduction, in accordance with section 245-120, of your tax losses (if any) for any income years, if the tax losses could, if you had enough assessable income, be deducted in:

a) the forgiveness income year; or

b) a later income year.

Order of reduction of tax losses

Subsection 245-120(1) provides you may choose the order in which your tax losses are reduced; and the amount applied to reduce each of those losses; so long as the total net forgiven amount is applied, to the maximum extent possible, in reduction of those losses.

If you do not make a choice for the purposes of subsection (1), the Commissioner may make the choice on your behalf in a reasonable way - subsection 245-120(2).

2. Reduction of net capital losses

Subsection 245-130(1) provides that total net forgiven amount (if any) remaining after being applied under section 245-115 is applied, to the maximum extent possible, in reduction, in accordance with section 245-135, of your net capital losses (if any) specified in subsection (2).

Subsection 245-130(2) provides that those net capital losses are your net capital losses for income years before the forgiveness income year that you could apply in working out your net capital gain for the forgiveness income year if you had enough capital gains.

Order of reduction of net capital losses

Subsection 245-135(1) provides you may choose the order in which your net capital losses are reduced; and the amount applied in reduction of each of those losses; so long as the total net forgiven amount remaining is applied, to the maximum extent possible, in reduction of those losses.

If you do not make a choice for the purposes of subsection (1), the Commissioner may make the choice on your behalf in a reasonable way - subsection 245-135(2).

3. Reduction of expenditure

Subsection 245-145(1) provides the total net forgiven amount (if any) remaining after being applied under sections 245-115 and 245-130 is applied, to the maximum extent possible, in reduction, in accordance with sections 245-150, 245-155 and 245-157, of your expenditure that:

(a) is mentioned in the table of expenditure in this subsection (other than expenditure covered by subsection (2)) and was incurred by you before the forgiveness income year; and

(b) apart from this Subdivision, could be deducted by you for the forgiveness income year or a later income year if no event or circumstance (other than a recoupment of the expenditure by you in the forgiveness income year) occurred that would affect its deductibility.

The table of expenditure in subsection 245-145(1) includes expenditure deductible under Division 40 referring to capital allowances.

Subsection 245-145(2) provides that expenditure is covered by this subsection if:

(a) it was incurred in respect of an asset you disposed of to an entity that you dealt with at arm's length in respect of the disposal; and

(b) the disposal occurred during the forgiveness income year before the forgiveness of any debt owed by you, and the forgiveness resulted in a net forgiven amount; and

(c) no provision of this Act includes an amount in your assessable income, or allows you a deduction, as a result of the disposal.

Order of reduction of expenditure

The order of reduction of expenditure is the same as the order of reduction of tax losses and of net capital losses as discussed above - subsections 245-150(1) and (2).

How expenditure is reduced?

Section 245-155 provides how expenditure is reduced for straight line deductions. Section 245-157 provides how expenditure is reduced for diminishing balance deductions.

Reduction of expenditure included in assessable income in certain circumstances

Section 245-160 provides if:

a) after the forgiveness income year, you recoup an amount of expenditure that is subject to reduction under section 245-145; and

b) as a result of the recoupment, this Act applies to disallow any amount you have deducted in respect of the expenditure;

an amount equal to the amount, or the sum of the amounts, applied under this Subdivision in reduction of the expenditure is included in your assessable income in the income year in which the expenditure is recouped.

4. Reduction of cost bases of assets

Subsection 245-175(1) provides the total net forgiven amount (if any) remaining after being applied under sections 245-115, 245-130 and 245-145 is applied, to the maximum extent possible, in reduction, in accordance with sections 245-180 to 245-190, of the cost base and reduced cost base of your CGT assets.

Subsection (1) does not apply to certain CGT assets fully set out in subsection 245-175(2) such as a CGT asset that, throughout the period before the forgiveness income year when it was owned by you, was your trading stock; goodwill; and a CGT asset if:

(i) expenditure by you (of a kind which is subject to reduction under section 245-145) relates to the asset; and

(ii) a CGT event in relation to the asset would result in an amount being included in your assessable income, or in you being able to deduct an amount.

Allocation of cost bases and reduced cost bases

Subsection 245-180(1) provides that (subject to section 245-185), you may choose:

(a) your CGT assets whose cost base and reduced cost base are subject to reduction under section 245-175; and

(b) the amount applied in reduction of the cost base and reduced cost base of each of those assets;

so long as the total net forgiven amount remaining is applied, to the maximum extent possible, in reduction of the cost base and reduced cost base of such assets.

If you do not make a choice for the purposes of subsection (1), the Commissioner may make the choice on your behalf in a reasonable way - subsection 245-180(2).

Relevant cost bases of investments in associated entities are reduced last

Section 245-185 provides that if your CGT assets that are subject to reduction under section 245-175 include investments in, or in relation to, an associate of yours (including membership interests, or debt interests, in your associate), the:

(a) cost base; and

(b) reduced cost base;

of those assets are not subject to reduction under section 245-175 until the total net forgiven amount (if any) remaining has been applied, to the maximum extent possible, in reduction of the cost bases of your other CGT assets.

Reduction of the relevant cost bases of a CGT asset

Subsection 245-190(1) provides that subject to subsection (3), if you choose to apply an amount in reduction of the cost base and reduced cost base of a particular CGT asset, the cost base and reduced cost base of the asset, as at any time on or after the beginning of the forgiveness income year, are reduced by that amount.

Subsection 245-190(2) provides that the reduction by a particular amount of the cost base and reduced cost base of a particular CGT asset is, for the purpose of working out the amount by which the total net forgiven amount remaining is applied, taken to be a reduction by the particular amount (and not by the sum of the amounts by which those cost bases are reduced).

Subsection 245-190(3) provides that the maximum amount by which the cost base and reduced cost base of a CGT asset may be reduced is the amount that, apart from sections 245-175 to 245-185, would be the reduced cost base of the asset calculated as if a CGT event had happened to the asset:

(a) subject to paragraph (b), on the first day of the forgiveness income year; or

(b) if, after the beginning of that income year, an event occurred that would cause the reduced cost base of the asset to be reduced - on the day on which the event occurred;

and the asset had been disposed of at its market value on the day concerned.

Section 245-195 provides that no further consequences if there is any remaining unapplied total net forgiven amount.

Keeping and retaining records; Penalty for failing to comply

Subsection 245-265(1) provides that if you incur a debt, you must keep any records that are necessary to enable the following matters to be readily found out:

(a) the date on which you incurred the debt;

(b) the identity of the creditor;

(d) the terms of repayment of the debt;

(e) if the debt is not a moneylending debt and you and the creditor were not dealing with each other at arm's length in respect of the incurring of the debt - your capacity at the time when the debt was incurred to pay the debt when it falls due;

(f) if your debt is forgiven - the date of the forgiveness and the amount offset under section 245-65 (if any) in respect of the debt.

Note:

There is an administrative penalty if you do not keep or retain records as required by this section under section 288-25 in Schedule 1 to the Taxation Administration Act 1953.

Subsection 245-265(4) provides that unless the debt is paid, you must keep the records required by subsection (1) until:

(a) if paragraph (b) does not apply - the end of 5 years after the debt was forgiven; or

(b) if the period within which the Commissioner may, under section 170 of the Income Tax Assessment Act 1936, amend your assessment for the income year to which the records relate, or in which a transaction or act to which the records relate was completed, is extended under subsection 170(7) of that Act - the later of:

(i) the end of the assessment period as so extended; and

(ii) the end of the period of 5 years mentioned in paragraph (a).

You commit an offence if you fail to comply with a provision of this section. Penalty: 30 penalty units - subsection 245-265(8).

An offence against subsection (8) is an offence of strict liability - subsection 245-265(9).

Note: For strict liability, see section 6.1 of the Criminal Code.

This section does not limit the application of any other provision of this Act relating to the keeping or retention of records - subsection 245-265(10).

Application to your circumstances

Division 245 contains special rules to remove the tax benefit, which is the resulting gain, obtained by the Trust when part of its commercial debt owed to you is forgiven by you. The resulting gain is not included in the assessable income of the Trust.

An amount equal to the tax benefit gained which is referred to as the 'net forgiven amount' is applied (in the manner prescribed by Division 245) to reduce the Trust's tax losses, net capital losses, un-deducted expenditures and CGT cost bases which are otherwise available to reduce the Trust's assessable income.

Based on the facts, the exclusions in section 245-40 will not apply to the Trust. The debt cannot be paid back because the Trust does not have the funds to pay the loan back given the Trustee had financial difficulty and ceased trading. As such the forgiveness will be due to an inability to repay.

Accordingly, section 245-40 will not exclude the forgiveness of the debt from the application of the commercial debt forgiveness rules in Division 245.

Generally, the value of the debt is its market value at the time of the forgiveness based on the assumption in paragraph 245-55(1)(a). However, the assumption in that paragraph does not apply or it will be ignored where the conditions in subsection 245-55(3) are met. That is, you (creditor) are an Australian resident at the forgiveness time; and you and the Trust were not dealing with each other at arm's length in respect of the Trust incurring the debt; and the debt was not a moneylending debt as defined in subsection 995-1(1) because you as the creditor is not in the business of money lending.

An amount can be offset against the value of the debt under section 245-65. Item 3 in column 1 of the table in subsection 245-65(1) (which explains how to work out the amount that is offset against the value of a debt when it is forgiven) says in the case where the debt is not a moneylending debt, and the conditions in subsection(2) are satisfied and none of the items at 4, 5 and 6 apply then the amount offset is the market value of the debt at the time of the forgiveness.

The conditions in subsection 245-65(2) are satisfied because at the time you forgive the debt you are an Australian resident; and there is no amount, and no property, covered by column 2 of item 2 of the table in subsection 245-65(1).

As per paragraph 245-75(2)(a) if the market value of the debt, at the time of the forgiveness, is equal to or less than the amount offset there is no gross forgiven amount in respect of the debt.

The value of the debt will be its market value at the time of the forgiveness. As the rules for determining the net forgiven amount in Subdivision 245-D do not apply in this case, effectively the market value of the debt at the time of the forgiveness will be taken to be the net forgiven amount.

The net forgiven amount will then be applied to reduce the Trust's tax losses, net capital losses, un-deducted expenditure and CGT asset cost bases in accordance with the rules in Subdivision 245-E as set out above. Any remaining balance of the net forgiven amount that cannot be applied will be disregarded.

Question 2

A CGT asset is defined as any kind of property, or a legal or equitable right that is not property - subsection 108-5(1). Relevantly, to avoid doubt, a part of, or an interest in, an asset referred to in subsection (1), is a CGT asset - subsection 108-5(2). Examples of CGT assets include land and buildings; shares in a company and units in a unit trust; options; debts owed to you; a right to enforce a contractual obligation; and foreign currency.

CGT Determination Number 3 TD 3 expresses the view that for CGT purposes, the borrower is not considered to have an asset. Accordingly, when the lender waives or forgives the debt, the borrower does not dispose of an asset and therefore makes no capital gain or capital loss.

Application to your circumstances

The Trustee of the Trust owed the loan (debt) to you. The debt is not a CGT asset to the Trustee as the borrower. Based on TD 3, the Trustee is not considered to have a CGT asset. As such the Trustee does not dispose of an asset when its loan liability to you is waived or forgiven by you. Therefore, the Trustee does not make any capital gain or capital loss from the forgiveness of debt because no CGT event happens to the Trustee.

Question 3

A debt owed to a lender is a CGT asset for the purposes of section 108-5 - see CGT Determination Number 2 TD 2 which specifically states that a debt is an asset of the lender. The debt is disposed of when the lender waives or forgives the debt. As such a CGT event will happen to the lender.

The relevant or most specific CGT event is determined depending on the facts and circumstance of the case - subsection 102-25(1).

Relevantly, subsection 104-25(1) provides that CGT event C2 happens if your ownership of an intangible CGT asset ends by the asset being released, discharged or satisfied. The time of the event is:

(a) when you enter into the contract that results in the asset ending; or

(b) if there is no contract - when the asset ends.

You make a capital gain if the capital proceeds from the ending are more than the asset's cost base. You make a capital loss if those capital proceeds are less than the asset's reduced cost base - subsection 104-25(3).

Whether the lender makes a capital gain or capital loss from the CGT event will depend on the consideration (capital proceeds) received for the forgiveness of debt and the appropriate cost base of the asset which is the debt.

Capital proceeds

The capital proceeds from a CGT event are the total of the money you have received, or are entitled to receive, in respect of the event happening; and the market value of any other property you have received, or are entitled to receive, in respect of the event happening (worked out as at the time of the event) - subsection 116-20(1).

The market value substitution rules will apply if no capital proceeds are received from a CGT event; and no consideration paid for the acquisition of a CGT asset - subsection 116-30(1).

Also, the capital proceeds from a CGT event are replaced with the market value of the CGT asset that is the subject of the event if the capital proceeds are more or less than the market value of the asset and the event is CGT event C2 - subsection 116-30(2).

The market value of the debt at the time of the CGT event is worked out as though the forgiveness of debt had not happened and was never proposed to happen - subsection 116-30(3A).

Cost base and reduced cost base

The cost base of a CGT asset consists of 5 elements - subsection 110-25(1). The first element is the total of the money you paid, or are required to pay, in respect of acquiring the asset; and the market value of any other property you gave, or are required to give, in respect of acquiring it (worked out as at the time of the acquisition) - subsection 110-25(2).

The second element is the incidental costs you incurred - subsection 110-25(3). The incidental costs are set out in section 110-35.

The third element is the costs of owning the CGT asset you incurred if you acquired the asset after 20 August 1991 - subsection 110-25(4). These costs include interest on money you borrowed to acquire the asset and/ or interest on money you borrowed to refinance the borrowed money to acquire the asset.

The fourth and fifth element refer to capital expenditure you incur the purpose of which is to preserve the asset's value; and to establish, preserve or defend your title to the asset, or a right over the asset - subsections 110-25(5) and (6).

All of the elements of the reduced cost base of a CGT asset are the same as those for the cost base except the third element - subsection 110-55(2).

Calculating capital gain or capital loss

You can make a capital gain or capital loss if and only if a CGT event happens. The gain or loss is made at the time of the event - section 102-20. Broadly, if the capital proceeds from the event are more than the asset's cost base, you make a capital gain. If the capital proceeds are less than the asset's reduced cost base, you make a capital loss.

Application to your circumstances

The loan you provided to the Trustee of the Trust is a CGT asset to you within the meaning of the term in section 108-5. CGT event C2 in section 104-25 will apply when you waive or forgive part of the loan.

For your capital proceeds from CGT event C2, you are taken to have received an amount equal to the market value of the debt at the time of the event, that is when the debt is forgiven, because you receive no consideration from the Trust for the forgiveness of the debt - refer to the market value substitution rule in subsection 116-30(1).

The market value of the debt at the time of the event is worked out as though the forgiveness of debt had not happened and was never proposed to happen - subsection 116-30(3A).

Broadly, the cost base and reduced cost base of an asset is the money paid to acquire or create the asset plus any expenditure and/ or incidental costs relating to the asset. For you as the lender, that will be the amount of your loan to the Trust.

If the market value of the debt is less than the amount owed to you (face value of the debt) then you will make a capital loss from the forgiveness of debt.

If the market value of the debt equals the face value of the debt, you make no capital gain or capital loss from the forgiveness of debt.

As explained above, the value of the debt will be its market value at the time of the forgiveness.

In your case, the value of the debt to be forgiven is XXXX and that amount is also the market value of the debt at the time of the forgiveness.

Therefore, you make no capital gain or capital loss from the forgiveness of debt.

You as the lender, will not be subject to income tax as a result of the forgiveness of debt.

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