H. Dee Johnson, Jr. and Mary L. Johnson, n.k.a. Mary L. Alphin - Page 8

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          however, that those amounts were not discharged.  To the                    
          contrary, 11 U.S.C. section 727(b) (2000) provides that, with               
          exceptions not here relevant, the effect of a discharge by a                
          bankruptcy court is to discharge the debtor “from all debts that            
          arose before the date of the order for relief under this chapter            
          * * * whether or not a proof of claim based on any such debt * *            
          * is filed under section 501 of this title”.  Accordingly,                  
          notwithstanding their omission from the trustee’s final report,             
          the CMI debts were discharged, giving rise to excludable                    
          discharge of indebtedness income in the amount of the CMI                   
          deficiencies ($197,500).  See sec. 108(a)(1)(A).                            
               Petitioners concede that, if respondent prevails (i.e., if             
          excludable income from discharge of indebtedness was realized on            
          account of petitioner’s discharge from the CMI debts), “$153,000            
          of * * * [the NOL] deduction [claimed on petitioners’ 1994 income           
          tax return] is eliminated under Section 108(b), and Petitioner’s            
          [sic] income tax return must be adjusted accordingly.”  As                  
          contemplated by petitioners, respondent has prevailed.  We                  
          therefore conclude that petitioners concede the correctness of              
          respondent’s adjustments eliminating from petitioners’ returns              
          for the audit years the claimed $153,000 NOL carryover resulting            
          from the worthlessness of the business debt.  We shall not                  
          disturb respondent’s adjustment on account thereof.                         








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