Richard William Corduan - Page 4




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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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