Layne E. Preslar and Sue F. Preslar - Page 7

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          Bank loan, effectively reversing their $430,000 reduction in                
          their tax basis in the Ranch.  Respondent also determined an                
          addition to tax under section 6651(a)(1) for petitioners' failure           
          to timely file their 1989 joint Federal income tax return.                  

                                       OPINION                                        
          Discharge of Indebtedness Income                                            
               Taxpayers generally are required to include cancellation or            
          discharge of indebtedness income in income.  Sec. 61(a)(12).  The           
          discharge, however, of a liability that is indefinite or                    
          contingent will not trigger discharge of indebtedness income.               
          Colonial Sav. Association v. Commissioner, 85 T.C. 855, 862                 
          (1985), affd. 854 F.2d 1001 (7th Cir. 1988).  Also, where the               
          nature and amount of a liability are contested in a good faith              
          dispute and where a compromise settlement is reached, the excess            
          of the stated principal amount of the alleged debt over the                 
          amount for which the liability is settled will not be treated as            
          discharge of indebtedness income.  United States v. Hall, 307               
          F.2d 238 (10th Cir. 1962); N. Sobel, Inc. v. Commissioner, 40               
          B.T.A. 1263, 1265 (1939); 2 Mertens, Law of Federal Income                  
          Taxation, sec. 11.19 (1996).                                                
               Petitioners argue that the economic realities of the                   
          transaction before us reflect that the $1 million stated purchase           
          price for the Ranch was inflated, that it did not accurately                
          reflect the fair market value of the Ranch, and effectively that            





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