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to prove that the Chef-Reddy payments constitute a return of
capital. See Rule 142(a) (burden of proof is on petitioners).
The parties have locked horns on whether, sometime prior to
receipt of the Chef-Reddy payments, Larry Monico received a
payment in liquidation of his interest in the account receivable.
Petitioners describe the nature of the controversy as follows:
Petitioners exchanged a short term account receivable
for a long term promissory note in a preceding year.
Petitioners assert the receipt of the promissory note
was a cash equivalent right, requiring the Petitioners
to recognize taxable gain in the year of exchange
[which they failed to recognize]. Petitioners claim
basis in the promissory note equal to the gain that
should have been recognized in the year of the
exchange.
Respondent describes the principal question presented as:
"Whether the account receivable * * * distributed to petitioner
Larry Monico by M & O Farms was converted to a note receivable at
a specific point in time between 1983 and 1989."
There is some confusion in petitioners' argument as to when
income should have been recognized by them with respect to the
account receivable. Petitioners conclude their opening brief
with the following argument: "When the Petitioners exchanged
their rights to collect the account receivable for a
long term promissory note [pursuant to the Other Matters section
of the purchase agreement], they should have recognized income in
that year (1987)." In their reply brief, petitioners propose a
finding of fact that Larry Monico accepted a promissory note from
Chef-Reddy in 1983 "rather than collecting full payment on the
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