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because of the unusual payment arrangement with Moncor Bank
relating to petitioners' assignment of the installment contracts,
petitioners should not be considered liable for the total
$1 million stated principal amount of the Bank loan.
Respondent argues that the fair market value of the Ranch
was $1 million, that petitioners were liable for the entire
$1 million stated principal amount of the Bank loan, and that the
payment arrangement between petitioners and Moncor Bank should
not be regarded as limiting petitioners' liability for the full
$1 million stated principal amount of the Bank loan. Respondent
therefore argues that no exception applies to preclude
petitioners' recognition of discharge of indebtedness income.
In the instant case, the unusual payment arrangement between
petitioners and Moncor Bank relating to the Bank loan casts
significant doubt on petitioners' liability for the total
$1 million stated principal amount of the Bank loan.
With every sale of a cabin lot, petitioners and Moncor Bank
reduced the stated principal amount due on the Bank loan by an
amount equal to 95 percent of the cabin lot sales contract,
regardless of the receipt by Moncor Bank of any actual
installment payments from purchasers of the cabin lots.
When the FDIC refused to honor this payment arrangement with
regard to the Bank loan, a legitimate dispute arose regarding the
nature and amount of petitioners' liability on the Bank loan.
The dispute over petitioners' liability on the Bank loan was
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