The taxpayer at issue in this advice from the National IRS office invested in a real estate transaction via a multi-member LLC taxed as a partnership. The transaction was financed and the creditors ultimately foreclosed. The foreclosure triggered income to the taxpayer that the taxpayer treated as cancelled debt income potentially excludible from income under the insolvency exception of I.R.C. Sec. 108(a)(1)(B) because, as the taxpayer claimed, the debt was recourse and the I.R.C. Sec. 752 rules applied due to the borrower being the LLC. On audit, the examining agent claimed that the debt was nonrecourse resulting in the income triggered on foreclosure being nonexcludible. On review by the National Office, the IRS did not make a determination as to the classification of the debt because that issue needed to be developed further, particularly because the debt did not impose an unconditional personal liability on the LLC. The National Office stated that the debt could be recourse because of the existence of guarantees and pledges, however. In addition, the National Office concluded that the regulations under I.R.C. Sec. 752 have no application in determining the classification of debt to a partnership. The National Office pointed out that it is improper to determine the status of debt at the partnership level for I.R.C. Sec. 1001 purposes based on whether the partners personally guarantee the debt. Taxpayers cannot rely on footnote 35 of Great Plains Gasification Associates v. Comr., T.C. Memo. 2006-276. In this situation, if the debt is nonrecourse, the entire amount of the debt is realized income eligible for long-term capital gain treatment, but cannot be excluded from income. CCM 201525010 (Mar. 6, 2015).