Angie McMasters owes Village Community Bank $410,000. Angie is having a tough time meeting the payments on the loan this year, and therefore begins negotiating a plan to extinguish the debt. Angie transfers investment property with a value of $155,000 and common stock with a vale of $150,000 and a basis of $170,000 to Village. Angie also pays Village$15,000 cash. After these negotiations, Village forgives the remaining debt. Before Angie began arbitration with Village, her assets were $500,000 and her liabilities were $540,000.
Angie would like to know the tax effects from the extinguishment of the debt. Please examine the related Code and Reg section and court cases and write a memo to the file discussing your findings. Your memo should not exceed 2 pages through the Support section.