Layne E. Preslar and Sue F. Preslar - Page 2

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               Unless otherwise indicated, all section references are to              
          the Internal Revenue Code in effect for 1989, and all Rule                  
          references are to the Tax Court Rules of Practice and Procedure.            
               After concessions by petitioners, the primary issue for                
          decision is whether petitioners received discharge of                       
          indebtedness income upon settlement of their liability on a bank            
          loan.                                                                       

                                  FINDINGS OF FACT                                    
               Many of the facts have been stipulated and are so found.               
               At the time the petition was filed, petitioners resided in             
          Cloudcroft, New Mexico.  All references to petitioner are to                
          Layne E. Preslar.                                                           
               In early 1983, petitioner, a real estate agent of 25 years,            
          began negotiations for the purchase of a 2,500-acre ranch near              
          Cloudcroft, New Mexico, known as the McCracken-Rinconada Ranch              
          (the Ranch).  Petitioner wanted to develop the Ranch as a                   
          sportsmen's resort.  Petitioner planned to subdivide and develop            
          160 acres of the Ranch and to sell 1- to 2-acre lots on which               
          cabins or vacation homes could be built (cabin lots).  Each cabin           
          lot would be sold for approximately $16,500, and petitioner                 
          projected gross revenue from sales of cabin lots of approximately           
          $1,584,000.  The remaining 2,340 acres on the Ranch that were not           
          to be sold as cabin lots would be used for hunting and other                
          outdoor recreation.                                                         





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