Floral Company owed $100,000 to the National Bank. If Floral transfers land with a cost of $60,000 in payment of the debt, then Floral must recognize $40,000 income. If Floral pays the bank $60,000 in settlement of the liability, then Floral has $40,000 income from discharge of indebtedness. If Floral pays the bank $60,000 in settlement of the liability and Floral is insolvent, then Floral can elect to reduce its basis in assets by $40,000 (in lieu of recognizing $40,000 gain)