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respondent on either of the two issues, we must decide whether a
penalty under section 6662(a) is appropriate.
Capital Gain vs. Inheritance
As evidenced by respondent's admission in her answer and
stipulation No. 17, it is undisputed that Mrs. Marcus received
$37,898 pursuant to the arrangement. Petitioners allege that the
$37,898 was received in lieu of an inheritance from her parents
and in settlement of claims against her stepfather's estate.
Therefore, under the principles of Lyeth v. Hoey, 305 U.S. 188
(1938), and its progeny, petitioners assert that the $37,898 is
excludable from gross income under section 102(a). Section
102(a) states:
SEC. 102(a). General Rule.--Gross income does not
include the value of property acquired by gift,
bequest, devise, or inheritance.
Despite admitting as much in her answer, respondent argues
that Lyeth is inapplicable because there was no dispute as to
Mrs. Marcus' inheritance.4 Respondent argues that Mrs. Marcus
sold property in 1990 that she had already inherited. Since
petitioners have offered no proof as to their basis in the
property, respondent argues that the entire proceeds are
includable in gross income. The arrangement, according to
4 Respondent, in par. 5(a) of her answer, admits that the
arrangement was entered into by Mrs. Marcus as a "substitute for
a bequest of property" and "in settlement of all claims * * *
against the estate". This admission was inexplicably ignored by
respondent at trial and in her briefs.
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