Joseph P. and Marilyn Schneller - Page 2

          amount of $26,676 for such year.1  Respondent reflected this                       
          determination in a notice of deficiency dated October 13, 1993.                    
                The principal unagreed item involves respondent’s                            
          determination that petitioners realized forgiveness of indebtedness                
          income pursuant to section 61(a)(12) as a result of a $476,363                     
          writeoff in 1990 of accounts that had been carried on the books of                 
          petitioners’ wholly owned corporation (Land Air Delivery, Inc.)                    
          essentially as shareholder loans.  Also in dispute is the section                  
          6662 accuracy-related penalty.    The  writeoff  followed  the                     
          settlement of a tax examination for years 1982-84.  In the                         
          settlement, the parties agreed that petitioners’ withdrawals from                  
          Land Air Delivery, Inc., should have been characterized, in part,                  
          as dividends rather than shareholder loans.  Petitioners maintain                  
          that such withdrawals constitute dividend income in the year of                    
          withdrawal, not 1990, and hence the writeoff in 1990 did not give                  
          rise to a taxable event.  Accordingly, the issues we must decide                   
                (1) Whether, as a result of the settlement agreement for                     
          years 1982-84, respondent is estopped from asserting that the                      
          corporate advances written off in 1990 were loans.  We hold that                   
          respondent is not.                                                                 
                (2) Whether petitioners realized discharge of indebtedness                   

                1    Petitioners made income tax payments for 1990 totaling                  
          $138,748 after filing their petition in this Court to stop the                     
          accrual of interest.                                                               

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