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minus the net recovery value of the real estate * * *.
This amount is $177,772.28 and is the maximum amount
that can be recaptured.
To secure the foregoing recapture agreement and in
accordance with its terms, petitioners gave FmHA a mortgage on
the 135 acres of their farmland secured by the original FmHA
mortgages. The recapture agreement provided that FmHA would
release this lien with respect to subject property sold or
conveyed within 10 years upon payment of the recapture amount
due. With respect to portions of the encumbered real estate not
disposed of during the agreement’s 10-year term, the lien would
be released at the expiration of such period. The lien was
secondary to liens held by Russell V. Jelle in the amount of
$31,000 and by the State Bank of Mt. Horeb in the amount of
$92,057.
For the taxable year 1996, the U.S. Department of
Agriculture Farm Service Agency issued to petitioners a Form
1099-C, Cancellation of Debt, showing an “Amount of debt
canceled” of $177,772.27. Petitioners did not report this amount
as income on their 1996 tax return and provided thereon no
reference to the buyout transaction or explanation of its
treatment.
Petitioners additionally received Social Security benefits
during 1996 in the amount of $3,420. No portion of these
benefits was disclosed by petitioners on their return for 1996.
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Last modified: May 25, 2011