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Absent clear and convincing proof to the contrary, the sale
price of property at a foreclosure sale is presumed to be its
fair market value. See Community Bank v. Commissioner, 79 T.C.
789, 792 (1982), affd. 819 F.2d 940 (9th Cir. 1987); Marcaccio v.
Commissioner, supra. In this case, however, petitioners have
rebutted this presumption with the required clear and convincing
proof. Petitioners introduced an appraisal opining that the fair
market value of the Dime Circle property on August 1, 1989, was
$375,000, not $571,179 as bid in by the lender. Respondent
offered no expert testimony on the fair market value and does not
challenge the accuracy of the appraisal. Respondent merely
argues that the bid-in amount must be used to determine the
amount realized, regardless of how arbitrarily that amount may
have been determined. We disagree.
In arguing that the bid-in amount must be used to determine
the amount realized, respondent, in effect, maintains that we
must respect the transaction for Federal income tax purposes. We
are not bound to blindly accept a transaction, and the law is
clear that courts may look behind a paper facade to find the
actual substance and economic realities of a transaction.
Knetsch v. United States, 364 U.S. 361, 369 (1960); Gregory v.
Helvering, 293 U.S. 465, 469 (1935); Sandvall v. Commissioner,
898 F.2d 455, 458 (5th Cir. 1990), affg. T.C. Memo. 1989-56 and
T.C. Memo. 1989-189; Merryman v. Commissioner, 873 F.2d 879, 881
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