Joseph P. and Marilyn Schneller - Page 9

          applicable Forms 870-AD petitioners and respondent executed address                
          only years 1982, 1983, and 1984 and treat only a portion of the                    
          account increases as dividends.  The forms have no application to                  
          other years.                                                                       
          Issue 2.  Discharge of Indebtedness Income                                         
                Each of the parties is taking a position contrary to that                    
          taken in connection with the 1982-84 examination.  Respondent                      
          maintains that the character of the items written off was that of                  
          loans and as such, the writeoff gave rise to discharge of                          
          indebtedness income under section 61(a)(12).  Petitioners now                      
          maintain that the items written off should be characterized as                     
          dividends. Respondent further contends that petitioners are                        
          estopped by the duty of consistency from denying that the character                
          of the corporate advances was that of loans. We agree with                         
                Section 61(a)(12) defines income to include amounts realized                 
          from the discharge of indebtedness.  The discharge of a debt below                 
          face value accords the debtor an economic benefit functionally                     
          equivalent to income.  Babin v. Commissioner, 23 F.3d 1032, 1034                   
          (6th Cir. 1994), affg. T.C. Memo. 1992-673.                                        
                The shareholder accounts at issue were carried on Delivery's                 
          books as shareholder loans, some dating back to 1976, until they                   
          were written off in 1990.  Further, Delivery's stockholders (that                  
          is, petitioners) adopted a resolution ratifying all existing loans,                
          advances, and investments, and authorized the corporation to                       

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