- 7 -
195 (1981); Estate of Bankhead v. Commissioner, 60 T.C. 535, 539
(1973). Petitioner bears the burden of proving that a discharge
of indebtedness does not result in taxable income. See Rule
142(a); Miller Trust v. Commissioner, supra.5
Respondent contends that the corporation lent petitioner
$50,000 in 1989 and that the debt remained unpaid and an asset of
the corporation until April 11, 1994, when enforcement on the
debt expired by operation of law.6 Respondent further contends
that the corporation canceled petitioner’s obligation on the note
during 1994. Thus, respondent asserts, petitioner realized
income during 1994 in the amount of $50,000 from the discharge of
indebtedness.
Petitioner, on the other hand, contends that she realized no
taxable income during 1994 relating to the forgiveness of debt.
She maintains that when she received the $50,000 from the
corporation the Pattersons had agreed to treat the payment as a
5The burden of proof provisions of sec. 7491 do not apply
here because the examination in this case began prior to July 22,
1998. See Internal Revenue Service Restructuring & Reform Act of
1998, Pub. L. 105-206, sec. 3001, 112 Stat. 726.
6In support of this contention, respondent relies on Neb.
Rev. Stat. sec. 25-205 (1995 Reissue), which reads in pertinent
part as follows:
Actions on written contracts, on foreign
judgments, or to recover collateral. (1) Except as
provided in subsection (2) of this section, an action
upon a specialty, or any agreement, contract, or
promise in writing, or foreign judgment, can only be
brought within five years; * * *.
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