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Hendler, supra. Therefore, a taxpayer who transfers mortgaged
property, whether to the mortgagee or another third party, and is
discharged from his liability on the mortgage debt in
consideration for the transfer, realizes a benefit in the amount
of the liability discharged. In the instant case, this reasoning
dictates that petitioners have taxable capital gain to the extent
that their personal mortgage indebtedness, paid off with the
foreclosure proceeds, exceeded their basis in the properties.
Crane v. Commissioner, supra; United States v. Hendler, supra;
Chilingirian v. Commissioner, supra.
Petitioners' claim that they are entitled to a deduction for
ordinary losses equal to their equity in the properties less
depreciation is without merit because, as discussed above, their
amount realized as a result of the foreclosures exceeded their
adjusted basis in the properties.
Respondent determined an addition to tax under section
6651(a)(1) for the late filing of petitioners' return. The
return was due on April 15, 1992, and filed on October 16, 1992.
There is no evidence of an extension to file. Section 6651(a)(1)
imposes an addition to tax for failure to file timely Federal
income tax returns unless the taxpayer shows that such failure
was due to reasonable cause and not willful neglect. United
States v. Boyle, 469 U.S. 241, 245 (1985). Petitioners have not
addressed the late filing or offered any reasonable cause
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