-43-
Respondent's argument on this issue on brief is that "petitioners
must recognize $82,485 of ordinary income from receipt of deeds
in lieu of foreclosure." Petitioners claim that, because "debt
extinguishment" is not an issue in this case, petitioners were
not adequately warned of the nature of the deficiency alleged by
respondent.
Petitioners had fair warning of respondent's position on
this issue. On brief, petitioners state: "In preparation for
trial, it was first realized that the Respondent was talking
about something totally different than debt extinguishment."
Emphasis added. Petitioners had the opportunity to present
pertinent evidence on this issue; therefore, we may fairly
consider it. However, the evidence that is required to disprove
the determination in the deficiency notice is different than that
required to meet the position taken by respondent at trial. See
Wayne Bolt & Nut Co. v. Commissioner, 93 T.C. 500, 507 (1989);
Colonnade Condominium, Inc. v. Commissioner, 91 T.C. 793, 795 n.3
(1988); Estate of Falese v. Commissioner, 58 T.C. 895, 899
(1972). Thus, respondent bears the burden of proof on this
issue.
Respondent contends that petitioners had income from the
acceptance of the deeds in lieu of foreclosure, calculated as
follows:
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