Richard D. Frazier and Yvonne Frazier - Page 6

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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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