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FINDINGS OF FACT
This case was submitted fully stipulated pursuant to Rule
122. The stipulation of facts is incorporated herein and found
accordingly. Petitioner, Mel T. Nelson, resided in Denver,
Colorado, at the time he filed the petition herein. Petitioner
was the sole shareholder in Metro Auto, Inc. (MAI), an S
corporation.
During the 1991 taxable year, MAI disposed of all of its
assets. In the same year, MAI realized discharge of indebtedness
income, pursuant to section 61(a)(12), in the amount of
$2,030,568 as a result of the disposition and a related agreement
between MAI and its creditors.3 In turn, the COD income of
$2,030,568 exceeded MAI's losses by $1,375,790 in 1991. Prior
and subsequent to the event giving rise to the COD income, MAI
was insolvent. MAI excluded from its gross income the entire
amount of the indebtedness discharged by its creditors.
Petitioner increased the basis of his stock in MAI by
$1,375,790 in 1991. Subsequently, petitioner disposed of his
stock in MAI and, in turn, claimed a long-term capital loss on
2(...continued)
$54,275, thereby increasing petitioner's taxable income by
$54,275.
3Discharge of indebtedness is also referred to as
cancellation of debt income (COD). For purposes of convenience
and clarity in this opinion, we refer to the income generated
from the discharge of indebtedness pursuant to sec. 61(a)(12) as
COD.
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