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All section references are to the Internal
Revenue Code, as in effect during 1989. References to
petitioner in this opinion are to Mr. Ronald H. Bradshaw.
The issues for decision are: (1) Whether income
realized by petitioners during 1989 in the amount of
$886,026 should be characterized as income from the
discharge of indebtedness or income from an illegal check-
kiting scheme; and (2) whether petitioners are liable for
the addition to tax under section 6651(a)(1) for failing to
file a timely return. As to the first issue, if we agree
with petitioners that the subject income is from the
discharge of indebtedness, pursuant to section 61(a)(12),
then it is not includable in petitioners' gross income
for 1989 because they were insolvent during that year by
more than the amount of the income. Sec. 108(a)(1)(B).
FINDINGS OF FACT
Some of the facts have been stipulated by the parties.
The Stipulation of Facts filed by the parties, together
with the exhibits attached thereto, is incorporated herein
by this reference. When petitioners filed the instant
petition, they resided in Arlington, Texas.
Petitioner was the sole stockholder and president of
Motion, Inc., a corporation engaged in the business of
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