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recognition of COD income in cases where the discharge occurs
when the taxpayer is insolvent. Sec. 108(a)(1)(B); see also
Babin v. Commissioner, 23 F.3d 1032, 1035 (6th Cir. 1994), affg.
T.C. Memo. 1992-673. For purposes of section 108, “insolvent”
means the excess of liabilities over the fair market value of
assets. Sec. 108(d)(3). Whether the taxpayer is insolvent shall
be determined on the basis of the taxpayer’s assets and
liabilities immediately before the discharge. Id.
Texas is a community property State. Tex. Fam. Code Ann.
secs. 3.001-3.309 (Vernon 2002); Lange v. Phinney, 507 F.2d 1000,
1005 (5th Cir. 1975). Thus, if petitioners were married, we must
include Ms. Yeager’s share of community assets and liabilities in
determining whether she was insolvent. We need not decide
petitioners’ marital status for 1995 for Federal income tax
purposes, however, because the evidence fails to establish the
amount of Ms. Yeager’s individual assets and liabilities as of
the date of the discharge of indebtedness, in 1995, by Advanta.
Petitioners’ figure of $32,000 in liabilities is taken from
the bankruptcy petition filed in February 1996. This figure is
not from the same year as, nor immediately before, the
cancellation of indebtedness.
Petitioners also rely on their own testimony to establish
that Ms. Yeager was insolvent. The Court is not required to
accept petitioners’ unsubstantiated testimony. Wood v.
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