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complete the project. The partnership defaulted on the note,
interest accrued, and it was not paid.
From 1984 through 1991, the partnership allocated to James
at least $6,166,647 in partnership losses (the allocated losses).
On their 1984 through 1991 joint Federal income tax returns,
petitioners did not fully use the allocated losses.3 Therefore,
a portion of the allocated losses became NOL carryovers.
On or about April 9, 1991, and again on July 15, 1991, the
bank sent a demand letter to the partnership and to the
individual partners (including James). On or about August 6,
1991, the bank conducted a foreclosure sale of the partnership's
real property securing the note. At the time of the foreclosure
sale, the partnership owed $9,967,301 on the note. The
guarantors' exposure on the principal of the note was the same.
The bank issued a Form 1099 to the partnership that
documented the foreclosure sale of the real property and the
bank's forgiveness of the partnership's debt to the bank. On its
1991 tax return, the partnership reported a loss in the amount of
$5,455,004 as a result of the bank's foreclosure sale. On its
1992 tax return, the partnership reported $14,094,231 in COD
income from the discharge of the partnership's principal and
3 Petitioners, however, were able to use at least
$3,053,203 of the allocated losses.
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Last modified: May 25, 2011