Robert K. & Dawn E. Lowry - Page 5

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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,                
               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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