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Pursuant to the March 5, 1990 agreement, petitioner increased his
indebtedness on the $2,000,000 note by borrowing an additional
$600,000 from Capitol Bank. The $600,000 was stated to be for
specified purposes in specified amounts, particularly, to pay
interest owed on the $2,000,000 note, reduce the personal
indebtedness of Banker and Lewis to Capitol Bank (for which he
was apparently responsible), and pay outstanding real estate
taxes on the Exeter Street property. In connection with this
refinancing, petitioner executed a quitclaim deed on March 5,
1990, to an escrow agent.
Capitol Bank was seized by the FDIC sometime prior to April
11, 1991. On April 11, 1991, due to petitioner's default on the
Capitol Bank notes, the FDIC took possession of the quitclaim
deed from the escrow agent. On November 12, 1991, the FDIC
executed a Mortgage Discharge in connection with the Exeter
Street property which was recorded on December 17, 1991. At the
time the FDIC took the quitclaim deed from the escrow agent,
petitioner owed Capitol Bank a total of $3,600,000 in connection
with the property. These debts were forgiven by the FDIC's
Mortgage Discharge.
During 1991, petitioner had a $3,152,867 basis in the Exeter
Street property. The parties have stipulated that if the Court
determines that petitioner did not sustain a capital loss in
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