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Respondent has conceded this effect. Therefore, we disagree with
petitioners that section 465 and the inclusion of the debt in
amount realized are mutually exclusive.
Moreover, we find no support in the record that respondent
and petitioners treated the debt as illusory. In contrast,
petitioners included the amount of the debt in their basis and
attempted to claim deductions relating thereto. Similarly,
respondent disallowed those deductions, not because the debt was
illusory, but rather because the section 465 at-risk rules
applied. Accordingly, we hold that petitioners must include in
their amount realized the amount of the FDC liability.
Since we have granted respondent’s motion to increase the
deficiency, she has the burden of proving the increased amount.
In light of the debt service schedule reflecting a balance of
$1,540,280 as the principal balance of the FDC note on January 2,
1990, and since petitioners have not offered any evidence to the
contrary, we hold that respondent has met her burden of proof
with respect to the increased deficiency.
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