4. LO.8 Before any debt cancellation, PeppersCo holds business land with a

$2,400,000 fair market value, a $1,000,000 tax basis, and a related mortgage of $3,000,000. The lender reduces the mortgage principal by $600,000. What are the Federal income tax consequences of the debt cancellation given the following independent scenarios?

a. Peppers is insolvent, and the land and related mortgage are the only asset and debt, respectively.

b. The mortgage is seller financing, and Peppers is solvent.

c. Peppers has filed for bankruptcy and the debt is discharged by that action.