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to understanding our report. Petitioners bear the burden of
proof. See Rule 142(a)(1).1
Background
At the time the petition was filed, petitioners resided in
Dallas, Texas.
On September 3, 1991, petitioner filed a voluntary petition
in bankruptcy (the bankruptcy petition) with the U.S. Bankruptcy
Court for the Eastern District of Texas (the bankruptcy court).
The bankruptcy petition was filed pursuant to chapter 7 of the
Bankruptcy Code (11 U.S.C.). Upon the filing of the bankruptcy
petition, a taxable person separate from petitioner came into
existence; i.e., the bankruptcy estate (bankruptcy estate). See
sec. 1398(a). A trustee (the trustee) was appointed to represent
the bankruptcy estate. Among the assets of the bankruptcy estate
were (1) a “$153,000 business debt” (the business debt), (2) real
property located in Argyle, Texas (the Argyle property), and (3)
real property located in Dallas, Texas (the Dallas property).
The business debt became worthless in 1991 after becoming an
asset of the estate. Both the Argyle property and the Dallas
property (together, the properties) secured debts of petitioner
1 Sec. 7491, which, under certain circumstances, shifts the
burden of proof to the Commissioner, is inapplicable because the
examination in this case began before July 22, 1998, the
effective date of that section. See Internal Revenue Service
Restructuring and Reform Act of 1998, Pub. L. 105-206, sec.
3001(c), 112 Stat. 727.
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