Dudley B. and La Donna K. Merkel - Page 7

          addition, the parties have stipulated that the “exposure of each            
          of petitioners Merkel and Hepburn” pursuant to petitioners'                 
          guarantees and the State tax exposure was $1 million and                    
          $490,000, respectively, and, “if the petitioners properly may               
          include the amount of their exposure under either * * *, the                
          petitioners were each insolvent to the extent of the full amount            
          of the * * * discharge of indebtedness income to each.”                     
          Petitioners bear the burden of proof on all questions of fact.              
          Rule 142(a).                                                                
               B.  Arguments of the Parties                                           
               Respondent argues that the term “liabilities”, as used in              
          section 108(d)(3), “must be given its plain meaning” and                    
          encompasses “only liabilities ripe and in existence on the                  
          measurement date”.  Respondent would have the Court find that               
          petitioners' guarantees were contingent liabilities and, thus,              
          not liabilities in existence on the measurement date for purposes           
          of section 108(d)(3).  Respondent would have the Court also find            
          that, as of the measurement date, the State tax exposure was not            
          a liability for purposes of section 108(d)(3), contingent or                
               Petitioners argue that the plain meaning of the term                   
          “liabilities” in section 108(d)(3) “includes all liabilities,               
          whether contingent or otherwise”, and “whether and how much of a            
          liability is counted must be determined on a liability-by-                  

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Last modified: May 25, 2011