15
In a letter to Sherman dated June 1, 1990, Murphy stated,
"Please be advised that * * * [Lone Star's] 1989 Form 1065 will
reflect receipt of $275,000 received as income in partial
settlement of its claims."
We find that Lone Star did not receive $258,986 from Electro
in 1989. The items highlighted by respondent indicate that
Murphy may have intended to collect a payment from Electro
pursuant to the 1989 settlement agreement, but we find that no
such payment occurred in 1989.
2. Lone Star's Disposition of the Chlor-Alkali System
Petitioners concede that Eltech forgave the debt in the
amount of $2,069,656 due from Lone Star. Petitioners argue that
this amount does not constitute income in 1989 because (1) the
debt was forgiven in 1987, and (2) the debt reduction qualifies
as a price reduction pursuant to section 108(e)(5).
Petitioners' contention that the discharge of indebtedness
occurred in 1987 directly contradicts Murphy's affidavit, which
provides that in 1989 Electro, Micro-Bio, and Eltech settled all
their disputes arising from Lone Star's purchase of the chlor-
alkali system. The affidavit provides that Eltech relieved Lone
Star of its obligation to pay $2,069,656. We sustain
respondent's determination that the discharge of indebtedness in
the amount of $2,069,656 occurred in 1989.
We further conclude that the discharge of debt by Eltech and
Lone Star's release of its ownership in the chlor-alkali system
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