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AAL issued to the partnership a Form 1099-A, Acquisition or
Abandonment of Secured Property, indicating that the partnership
had an outstanding debt of $3,218,046 on the Fitch property and
that the Fitch property had been surrendered to AAL on December
15, 1993, at an appraised value of $1,915,000. On October 14,
1994, the partnership filed an amended return for 1993, which
included a statement that the information contained in the Form
1099-A issued by AAL was "wholly inaccurate" and that AAL erred
in reporting the transaction during 1993. The statement
indicated that a deed in lieu of foreclosure was delivered to AAL
on May 27, 1994, and further indicated that the Fitch property
had been transferred to Lowry Wells Limited Liability Company
which "will correctly report this 1994 event on a 1994 return and
realize and recognize any gains (or losses) as is appropriate in
that filing."
Following an examination of the partnership's return for
1994, respondent issued a 30-day letter to the partnership
including an examination report which stated in pertinent part:
"On 12-15-93, it [the partnership] surrendered the property back
to the Lender [AAL]". Respondent subsequently issued a notice of
deficiency to petitioners determining deficiencies in and
accuracy-related penalties with respect to their Federal income
taxes for 1994 and 1995. Contrary to the examination report
attached to the 30-day letter, respondent determined that the
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