- 9 -
of their insurance business; (2) whether the self-employment
income reported on petitioners' Schedule C should be reclassified
as wage income; (3) whether petitioners are entitled to deduct
certain expenses on the Schedule C; (4) whether petitioners
received constructive dividends; (5) whether petitioners are
entitled to deduct rental losses; and (6) whether petitioners are
allowed a deduction for contributions to petitioner's retirement
plan.
The record does not reflect, and the parties did not provide
the Court with the details surrounding, the settlement of these
issues. If petitioners prevail on the most significant issue,
however, they have satisfied the requirement of section
7430(c)(4)(A). See Huckaby v. United States, supra.
Based on documents contained in the record, the most
significant issue in this case was whether petitioners must
recognize gain upon the transfer of assets and liabilities to the
corporation. Upon settlement of this case, petitioners conceded
that they must indeed recognize such gain.
Petitioners argue, nevertheless, that because they
recognized gain under section 357(c) instead of section 357(b),
they are the prevailing party on this issue. We disagree. Given
the facts and circumstances of this case, we find it irrelevant
whether gain was recognized under section 357(c) or 357(b).
Simply stated, petitioners must recognize gain due to the
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