Dennis and Dorinda J. Jelle - Page 1

                                   116 T.C. No. 6                                     

                               UNITED STATES TAX COURT                                

                     DENNIS AND DORINDA J. JELLE, Petitioners v.                      
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket No. 20059-98.                 Filed January 31, 2001.           

                    Ps are the owners of agricultural property which,                 
               prior to the transactions at issue, was subject to                     
               outstanding mortgages held by the Farmers Home                         
               Administration (FmHA).  After Ps became unable to meet                 
               payment obligations under these mortgages, Ps and FmHA                 
               negotiated an alternative arrangement.  Pursuant                       
               thereto, (1) Ps in 1996 paid to FmHA the $92,057 net                   
               recovery value of their property, (2) FmHA in that year                
               wrote off the remaining loan balance of $177,772, and                  
               (3) Ps entered into a net recovery buyout recapture                    
               agreement to repay to FmHA amounts written off in the                  
               event that they disposed of the land within a 10-year                  
                    Held:  Ps are required to recognize income in 1996                
               under sec. 61(a)(12), I.R.C., on account of a $177,772                 
               discharge of indebtedness in that year.                                
                    Held, further, Ps must report as income 85 percent                
               of amounts they received in the form of Social Security                
               benefits, in accordance with sec. 86(a), I.R.C.                        

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