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partnership surrendered the Fitch property to AAL in 1994 and
that petitioners failed to report $774,982 on their 1994 return
representing petitioner's distributive share of the gain
recognized by the partnership under section 1231.
Petitioners filed a petition contesting the notice of
deficiency in which they contend that the surrender of the Fitch
property occurred in 1993 and respondent erred in determining
that the resultant cancellation of indebtedness income was
recognized in 1994. Respondent contends that the partnership
recognized a gain in 1994 because the closing of escrow on, and
transfer of title to, the Fitch property occurred on May 27,
1994.
Discussion
The partnership and AAL executed a covenant which plainly
states that AAL's cancellation of the partnership's debt was
conditioned, among other requirements, on "the conveyance" of the
Fitch property. Black's Law Dictionary 334 (7th ed. 1999)
defines the term "convey" as "To transfer or deliver (something,
such as a right or property) to another, esp. by deed or other
writing." The covenant does not purport to convey the Fitch
property from the partnership to AAL. Rather, the covenant
merely describes the consideration to be exchanged by the
partnership and AAL to support their mutual agreement not to sue.
It is well settled that an agreement to cancel debt in the future
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