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Respondent contends that petitioner had not timely adopted a
liquidation plan and that the gain was taxable. Respondent
acknowledges that a formal written liquidation plan is not
required under section 337. Respondent argues, however, that the
evidence establishes that an informal plan was not adopted.
Petitioner has the burden of proving that respondent's
determination of unreported income is erroneous. Rule 142(a);
INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992).
Respondent, however, must prove by clear and convincing evidence
an underpayment of tax, as well as fraudulent intent, in relation
to the addition to tax for fraud. Secs. 6653(b)(1), 7454(a);
Rule 142(b).
Gain on Sale
The nonrecognition of gain or loss provisions of section 337
in connection with corporate liquidations were repealed by the
Tax Reform Act of 1986, Pub. L. 99-514, sec. 633(d), 100 Stat.
2085, 2280. A transition rule allowed certain small corporations
to be eligible for section 337 nonrecognition for a longer
period. ACT was eligible for the transitional exemption,
provided that the liquidation was completed before January 1,
1989. Section 337 as it applied to ACT provided as follows:
SEC. 337. GAIN OR LOSS ON SALES OR EXCHANGES IN
CONNECTION WITH CERTAIN LIQUIDATIONS.
(a) General Rule.--If, within the 12-month period
beginning on the date on which a corporation adopts a
plan of complete liquidation, all of the assets of the
corporation are distributed in complete liquidation,
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