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States v. Leach, 749 F.2d 592, 600 (10th Cir. 1984); Tokarski v.
Commissioner, 87 T.C. 74, 77 (1986).
From the credible evidence in the record, we find that
petitioners overvalued the Walnut property when they transferred
it to BEC, and that they are now looking for a way to mitigate
the taxes that are due on account of this overvaluation.
Petitioners purchased the properties from third parties and
transferred the properties to BEC mainly for a cancellation of
Mr. Burke's debt. Such a transfer is a taxable event. Property
that is transferred in cancellation of debt may generate gain
from a sale or exchange under section 1001, measured by the
excess of the property's fair market value over its adjusted
basis. Sec. 1001; see also Gehl v. Commissioner, 102 T.C. 784,
785 (1994), affd. without published opinion 50 F.3d 12 (8th Cir.
1995); Danenberg v. Commissioner, 73 T.C. 370, 380-381 (1979);
Estate of Delman v. Commissioner, 73 T.C. 15, 28 (1979); Bialock
v. Commissioner, 35 T.C. 649, 660 (1961).
For purposes of computing petitioners' gain or loss on the
transfer of the properties to BEC, petitioners are considered to
have realized an amount equal to the fair market value of the
properties at the time of the transfer. Sec. 1.1001-2(c),
Example (8), Income Tax Regs.; see also Marcaccio v.
Commissioner, T.C. Memo. 1995-174. Given the fact that the
aggregate value of the properties was $512,000 ($262,000 +
$250,000) and that their aggregate basis was $81,276 ($72,426 +
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