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between a willing buyer and a willing seller, neither being under
compulsion to buy or sell and both having reasonable knowledge of
relevant facts. See United States v. Cartwright, 411 U.S. 546,
551 (1973); United States v. Simmons, 346 F.2d 213, 217 (5th Cir.
1965); Frazee v. Commissioner, 98 T.C. 554, 562 (1992); see also
sec. 1.170A-1(c)(2), Income Tax Regs. The amount bid in by a
lender at a foreclosure sale may be arbitrary. As petitioners
stated on brief, there are many possible reasons why a lender
would bid in higher than the fair market value, such as if the
lender believed it would be unable to collect a deficiency
judgment because the debtor is contemplating bankruptcy, or
simply to erase the loss from its books. See, e.g., Securities
Mortgage Co. v. Commissioner, 58 T.C. 667, 669-670 (1972).
However, we need not determine the intent of the lender in
formulating the bid-in price. We are satisfied that the bid-in
price did not represent the fair market value of the Dime Circle
property. We find that the fair market value of the Dime Circle
property on August 1, 1989, was $375,000. Accordingly,
petitioners realized $375,000 on the disposition of the Dime
Circle property.
We must now determine the Federal income tax consequences of
this transaction for petitioners. Petitioners rely on Rev. Rul.
90-16, 1990-1 C.B. 12, and argue for bifurcation of the
transaction. Respondent argues against his own revenue ruling,
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