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In bankruptcy Schedule D, petitioners listed Credit Union
among their secured creditors.
On December 16, 1996, Credit Union filed a claim against
petitioners’ bankruptcy estate with respect to a loan of
$84,192.13 that was secured by the Quissett.
On January 8, 1997, the trustee of petitioners’ bankruptcy
estate (trustee) filed a document entitled “TRUSTEE’S REPORT OF
NO DISTRIBUTION” (trustee’s report) with the bankruptcy court.
In that report, the trustee stated, inter alia, that, except for
exempt property, no property had been received and no money had
been paid on account of petitioners’ estate and that there was no
property available for distribution from the estate.
On February 21, 1997, the bankruptcy court granted petition-
ers a discharge.
In May 1997, Credit Union foreclosed on a loan to petition-
ers that was secured by the Quissett and sold that boat for
$22,000.
Credit Union issued Form 1099-C, Cancellation of Debt (Form
1099-C), to Mr. Stoddard for 1997. Form 1099-C indicated that
the amount of debt canceled was $64,116.40.
Long-Term Capital Gain From the Sale of Certain Property
During August 1990, petitioners purchased a condominium unit
(condo) for $165,000. During 1993, 1994, and part of 1995,
petitioners rented that condo. On July 20, 1995, they sold it
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