California Bar Journal
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California Bar Journal

The State Bar of California


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Front Page - March 2002
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News / News Briefs
Midyear meeting will focus on fairness
E-briefs offer bar updates
Three strikes supporter has a change of heart, now wants the law restricted
ABA seeks nominations for three awards
Rule change proposed to protect government whistleblowers
More pamphlets added, translated
Innovation garners awards for 11 courts
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Trials Digest
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Public Comment
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From the President - New era of bar-conference cooperation
Conference of Delegates: A valuable ally
PG&E's plan: A power play
Letters to the Editor
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You Need to Know
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Ethics Byte - Twilight zone cases can make practice tricky
Former deputy DA, convicted of grand theft, is suspended
Attorney Discipline
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MCLE Self-Study
At tax time, modify debt with caution
Self-Assessment Test
MCLE Calendar of Events


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Self-Assessment Test
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Answer the following questions after reading the MCLE article on modifying debt. Use the answer form provided to send the test, along with a $20 processing fee, to the State Bar. If you do not receive your certificate within four weeks, call Ibrahim Bah at 415/538-2028.

1. Income resulting from the satisfaction of a debt for less than the amount owed is always excluded from income.

2. Section 61(a)(12) sets forth the general rule concerning the treatment of income from cancellation of indebtedness ("CODI").

3. In addition to the exceptions described in 108, taxpayers may avail themselves of several judicially created exceptions to the rule of 61(a)(12).

4. Section 108(a) does not apply to solvent taxpayers.

5. A taxpayer must satisfy each and every one of the exclusions described in 108(a) in order to exclude CODI from income.

6. A taxpayer may elect to have 108 apply.

7. In some instances, bankrupt and insolvent taxpayers might be excluded from employing 108(a) for the purpose of excluding CODI.

8. For purposes of 108(a), a taxpayer is bankrupt if a bankruptcy petition has been filed concerning him.

9. A taxpayer is insolvent if the amount of his liabilities exceed the basis of his assets.

10. The amount of CODI excludible from income under the insolvency exception of 108(a)(1)(B) may not exceed the amount by which the taxpayer was insolvent immediately before discharge.

11. Contingent liabilities may always be counted as liabilities for purposes of 108(a)(1)(B). 

12. Assets exempt from the claims of creditors under state law should nevertheless be considered when conducting an insolvency determination.

13. A taxpayer who excludes CODI under 108(a) must reduce the amount of his tax attributes by the amount of CODI excluded.

14. Debts which are deductible by the taxpayer do not create CODI.

15. Section 108(e)(5) applies to all taxpayers.

16. Debt reduction granted by the seller of property to the purchaser of property may always be excluded from gross income.

17. CODI results if a person related to the taxpayer purchases the taxpayer's debt from a party unrelated to the taxpayer for less than the amount owed.

18. A son-in-law is not a related party for purposes of 108(e)(5).

19. The United States Tax Court and IRS are at odds over how exempt assets should be treated when determining a taxpayer's insolvency. 

20. Accrual basis taxpayers are less likely to utilize the exclusion from income set forth in 108(e)(2).