However, the key event is the transfer of title and the risks and
responsibilities of ownership away from the holder of the property with a
termination of the debtor’s interest in the property. If property transfers to the
mortgage holder in the proceedings and it moves beyond the ability of the
debtor to obtain the property back, then a later sale by the mortgage holder
will not control the recognition date or amount recognized [see, for instance,
Davidson v. Commissioner, TC Memo 1977-14].
If the taxpayer surrenders the property back to the lender, either under a
deed in lieu of foreclosure or via an abandonment, the transaction is treated
for tax purposes in the same manner as a foreclosure. [Revenue Ruling 90-
16]. While generally it will be fairly easy to determine the effective date of a
deed in lieu of foreclosure, determining the effective date of an abandonment
may be more difficult.