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such assets may not be excluded in making that calcula-
tion, Ps were not insolvent within the meaning of sec.
108(d)(3), I.R.C., and may not exclude the DOI income
from gross income pursuant to sec. 108(a)(1)(B), I.R.C.
Held: The word “assets” as used in sec.
108(d)(3), I.R.C., includes assets exempt from the
claims of creditors under applicable State law.
Held, further: Ps are liable for the accuracy-
related penalty under sec. 6662(a), I.R.C., to the
extent stated herein.
Terry P. Draeger, for petitioners.
Kay Hill, for respondent.
OPINION
CHIECHI, Judge: Respondent determined a deficiency in, and
an accuracy-related penalty under section 6662(a)1 on, petition-
ers’ Federal income tax (tax) for 1993 in the amounts of $14,449
and $2,890, respectively.
The issues remaining for decision are:
(1) Are petitioners entitled to exclude from gross income
under section 108(a)(1)(B) discharge of indebtedness (DOI) income
in the amount of $42,142? We hold that they are not.
(2) Are petitioners liable for the accuracy-related penalty
1Unless otherwise indicated, all section references are to
the Internal Revenue Code (Code) in effect for the year at issue.
All Rule references are to the Tax Court Rules of Practice and
Procedure.
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