-34-
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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