Several years ago, Courtney borrowed $100,000 of recourse debt from the Friendly Local Bank and used it to buy some equipment to start up a business. Courtney's business results have been disappointing and she has not made any principal payments on the loan, but she has paid all of the interest due. Courtney has fallen on hard times and her only asset is the equipment, which is now worth $75,000 and in which she now has an adjusted basis of $50,000. Courtney has no other assets and no other liabilities.

Required:If the bank cancels the debt in exchange for the apartment building, what are the income tax consequences to Courtney?

a) Provide a list of the primary authorities on which you relied on in answering part b.

b) Essay discussion: