Dudley B. and La Donna K. Merkel - Page 34

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                    8.  Conclusion                                                    
               In conclusion, a taxpayer claiming the benefit of the                  
          insolvency exclusion must prove (1) with respect to any                     
          obligation claimed to be a liability, that, as of the calculation           
          date, it is more probable than not that he will be called upon to           
          pay that obligation in the amount claimed and (2) that the total            
          liabilities so proved exceed the fair market value of his assets.           
               D.  Application                                                        
                    1.  Petitioners’ Burden of Proof                                  
               As stated in section I.A., supra, the parties have                     
          stipulated that the exposure of each of the Merkels and the                 
          Hepburns pursuant to petitioners’ guarantees and the State tax              
          exposure was $1 million and $490,000, respectively, and inclusion           
          of the amount of their exposure under either obligation would               
          make each of them insolvent to the extent of the full amount of             
          the discharge of indebtedness income to each.  Petitioners bear             
          the burden of proof, Rule 142(a), but have proposed no findings             
          of fact with respect to the other liabilities or the fair market            
          value of the assets of either the Merkels or the Hepburns as of             
          the measurement date.  Thus, we must conclude that petitioners              
          intend to prove that they (each of the Merkels and the Hepburns)            
          were insolvent by showing that the amount of the liability under            
          either, both, or the sum of petitioners’ guarantees and the State           
          tax exposure was at least $490,000.  If it were any less, we have           






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