Michael Friedman and Madeline Friedman - Page 2

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          Deborah Rosenthal's 1989 and 1990 Federal income tax in the                 
          amounts of $617,446, and $811,723, respectively.1  The issues for           
          consideration are: (1) Whether petitioners' S corporation                   
          realized discharge of indebtedness income pursuant to section               
          108(a)2 in the 1992 taxable year, and (2) whether petitioners may           
          increase the basis in their S corporation stock by the amount of            
          any discharge of indebtedness income realized by the                        
          corporation.3                                                               
                                  FINDINGS OF FACT                                    
               This case was submitted fully stipulated pursuant to Rule              
          122.  The stipulation of facts and the exhibits are incorporated            
          herein and found accordingly.                                               
               Petitioners Michael and Madeline Friedman resided in Pepper            
          Pike, Ohio, at the time the notice of deficiency was issued to              
          them.  The Friedmans filed joint Federal income tax returns for             
          the taxable years 1989, 1990, and 1992.  On October 15, 1993, the           
          Friedmans filed a claim for refund based on net operating loss              

               1These cases were consolidated for purposes of briefing and            
          opinion.                                                                    
               2All section references are to the Internal Revenue Code in            
          effect for the years at issue, and all Rule references are to the           
          Tax Court Rules of Practice and Procedure, unless otherwise                 
          indicated.                                                                  
               3Madeline Friedman and Deborah Rosenthal are petitioners               
          solely by virtue of having filed joint returns with their                   
          husbands.  Hereafter, references to "Rosenthal," "Friedman,"                
          "petitioner-husband," and "petitioners" will be to petitioner-              
          husbands.                                                                   




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