T.C. Memo. 2003-225
UNITED STATES TAX COURT
ROBERT K. AND DAWN E. LOWRY, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 11579-00. Filed July 30, 2003.
Ps realized a sec. 1231, I.R.C., gain when a
partnership of which P husband was a 50-percent owner
conveyed rental property to the holder of a security
deed on the property in satisfaction of the loan
obligation. Ps assert that the gain should be
recognized in 1993, because the lender issued a Form
1099-A indicating that the lender had acquired the
property on Dec. 15, 1993, the partnership executed a
grant deed, and the lender executed a covenant not to
sue, both dated Dec. 15, 1993. In the same month, the
partnership and the lender issued escrow instructions
to a title company, under which the grant deed and
covenant not to sue were delivered in escrow pending a
subsequent closing of title. Title closed in 1994. Ps
did not disclose the gain on either their 1993 or 1994
Federal income tax returns. Held: Ps’ sec. 1231,
I.R.C., gain must be recognized in 1994. Held,
further, Ps are liable for the sec. 6662(a),
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