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§ 9.20 PROPERTY SUBJECT TO DEBTOne of these consequences is that the transaction is likely to be a bargainsale. 468 This is because the transfer of property that was subject to a debt relievedthe donor of that obligation, which is a form of consideration, so the donorreceived something in return for the gift (namely, relief from the debt). 469 Thistopic has been the subject of litigation.The federal tax law is clear that “gain from the sale or other disposition ofproperty shall be the excess of the amount realized therefrom over the adjustedbasis.” 470 The general rule is that the “adjusted basis for determining the gain orloss from the sale or other disposition of property, whenever acquired, shall bethe basis” for federal tax law purposes, as “adjusted.” 471 The phrase other dispositionof property includes a gift of property. Thus, a “disposition of propertyincludes a gift of the property or a transfer of the property in satisfaction of theliabilities to which it is subject.” 472 The bargain sale rules, however, entail asomewhat different definition of the term basis, which is that, if a deduction isallowed for a federal income tax charitable contribution deduction “by reason ofa sale, then the adjusted basis for determining the gain from such sale shall bethat portion of the adjusted basis which bears the same ratio to the adjustedbasis as the amount realized bears to the fair market value of the property.” 473Thus, the general rule uses the phrase sale or other disposition, while the bargainsale rule only uses the term sale. This led to the contention that a sale occurs inthis setting only when the transferor receives a direct benefit from the transaction,such as cash upon mortgaging the property or a depreciation deductionwith respect to the property prior to transferring it to the charity. 474 This argumentleads to the collateral argument that the general rule for determining basisapplies, rather than the bargain sale rule.A Supreme Court opinion made it clear, however, that taxation on relieffrom debt is not dependent on any theory of economic benefit; rather, it appliesto situations such as those not involving the taking of any depreciation deductions.475 The court stated:This, however, does not erase the fact that the mortgagor received the loanproceeds taxfree and included them in his basis on the understanding that hehad an obligation to repay the full amount. . . . When the obligation is cancelled,the mortgagor is relieved of his responsibility to repay the sum he originallyreceived and thus realizes value to that extent within the meaning of . . .[the tax law defining amount received 476 ]. From the mortgagor’s point of view,when his obligation is assumed by a third party who purchases the encumberedproperty, it is as if the mortgagor first had been paid with cash borrowedby the third party from the mortgagee on a nonrecourse basis, and thenhad used the cash to satisfy his obligation to the mortgagee. 477468 See § 9.19.469 Reg § 1.1011-2(a)(3). See, e.g., Rev. Rul. 81-163, 1981-1 C.B. 433.470 IRC § 1001(a).471 IRC § 1011(a). The rules concerning adjusted basis are the subject of IRC § 1016.472 Reg. § 1.1001-2(a)(4)(iii).473 IRC § 1011(b).474 This was the taxpayers’ contention in Ebben v. Commissioner, 783 F.2d 906, 911–12 (9th Cir. 1986). Therewere grounds for this argument. See, e.g., Crane v. Commissioner, 331 U.S. 1 (1947).475 Commissioner v. Tufts, 461 U.S. 300 (1983).476 IRC § 1001(b).477 Commissioner v. Tufts, 461 U.S. 300, 312 (1983) (citation omitted). 331