Gerald E. and Nancy J. Toberman - Page 9




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              A.  Discharge of Indebtedness Income                                    
              Stipulated evidence--specifically, Bonnevista’s 1991 Federal            
         income tax return and Castle Tower’s 1990 Federal income tax                 
         return--shows that as of December 31, 1991, petitioner owed                  
         Bonnevista $2,244,164, and that as of December 31, 1990, he owed             
         Castle Towers $633,329.  Petitioners have stipulated that                    
         Bonnevista and Castle Towers filed no subsequent Federal income              
         tax returns.  These corporations failed, however, to provide                 
         respondent the notification that would have been required if they            
         had ceased to exist.10                                                       
              The stipulated evidence shows that in March 1993 when he                
         submitted his financial statement to the IRS, petitioner                     
         represented under penalties of perjury–-and does not now                     
         dispute--that he no longer owed these liabilities.  Petitioner               
         does not argue, and has adduced no evidence to show, that he                 
         directly repaid these loans.                                                 


               10 If an S corporation ceases to exist, it thereby                     
          terminates its election under sec. 1362(a) to be taxed as an S              
          corporation and is required to attach to its return for the                 
          taxable year in which the termination occurs a notification that            
          a termination has occurred and the date of termination.  See sec.           
          1.1362-2(b)(1), Income Tax Regs.  In addition, if the corporation           
          has ceased to exist, box F(2) of Form 1120S, indicating a final             
          return, must be checked.  See Instructions for Form 1120S; see              
          also sec. 1.6037-1(a)(5), Income Tax Regs. (the return of an S              
          corporation shall include, inter alia, information as is required           
          by the instructions issued with respect to the form).  The last             
          returns presented by Bonnevista and Castle Towers, as stipulated            
          into evidence, include no attachments notifying the Commissioner            
          that a termination has occurred, nor is box F(2), indicating a              
          final return, checked on either return.                                     





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