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
period.
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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