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whether petitioner is liable for accuracy-related penalties for
negligence or disregard of rules or regulations.2
Some of the facts have been stipulated and are so found.
The stipulations of fact and the attached exhibits are
incorporated herein by this reference. Petitioner resided in
Trevor, Wisconsin, on the date the petition was filed in this
case. Petitioner’s audit commenced on May 28, 1998.
The first issue for decision is whether petitioner had
unreported discharge of indebtedness (DOI) income. Respondent
determined that petitioner had unreported DOI income of $6,005 in
1995.
Gross income generally includes all income from whatever
source derived including gains from dealings in property and
income from DOI. See sec. 61(a)(3), (12); sec. 1001. Where a
debt is discharged upon the debtor’s transfer of property to his
creditor, such transaction is treated as a sale or exchange of
the debtor’s property. See Gehl v. Commissioner, 102 T.C. 784
(1994), affd. without published opinion 50 F.3d 12 (8th Cir.
1995). In the case of recourse indebtedness, the debtor
recognizes gain on the transfer of the property in an amount
equal to the excess of the fair market value over the basis of
the property. See id. Such gain is includable in gross income
2The adjustment to petitioner’s deduction of medical
expenses in 1996 is computational and will be resolved by the
Court’s holding on the issues in this case.
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