Garry D. Acuncius and Danalene L. Acuncius - Page 5

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               1992 Income taxes                            2,000                     
               1994 Income taxes                       5,000                          
               Respondent determined that petitioners were liable for                 
          income from discharge of indebtedness of $32,000 in 1997 and an             
          accuracy-related penalty of $1,858 due to a substantial                     
          understatement of tax.  When petitioners received the notice of             
          deficiency, this was the first time that they were aware that the           
          loan had been discharged in 1997 because they had not received              
          any of the notices from BankTEXAS.                                          
          I.   Income from the Discharge of Indebtedness                              
               A.   Burden of Proof                                                   
               Section 7491 applies to this case because the examination in           
          this case began after July 22, 1998.  Internal Revenue Service              
          Restructuring & Reform Act of 1998, Pub. L. 105-206, sec.                   
          3001(c), 112 Stat. 685, 727.  We do not find, however, that the             
          resolution of this case depends on which party has the burden of            
          proof.  We resolve the issue on the basis of a preponderance of             
          evidence in the record.  Assuming arguendo that petitioners do              
          have the burden of proof under section 7491, we still conclude,             
          on the basis of evidence in the record, that petitioners                    
          recognized no discharge of indebtedness income with regard to the           
          BankTEXAS loan in 1997.                                                     

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