Sioana U. and S. Moli Ngatuvai - Page 3

                                        - 2 -                                         
               Respondent determined that petitioners are liable for a                
          deficiency in Federal income tax of $5,185 and an accuracy-                 
          related penalty under section 6662 of $1,037 for the 2001 taxable           
          year.  After concessions,1 the issue for decision is whether                
          petitioners’ gross income for 2001 includes $30,714, the portion            
          of a loan discharged by the United States Department of                     
          Agriculture during that taxable year.                                       
               Some of the facts have been stipulated, and they are so                
          found.  An oral stipulation of facts and the exhibits are                   
          incorporated herein by this reference.  At the time of filing of            
          their petition, petitioners resided in Provo, Utah.                         
               In 1991, petitioners received a $50,000 loan from the United           
          States Department of Agriculture (USDA).  At the time,                      
          petitioners were farmers in Hawaii who leased 20 acres of land              
          for a farming operation.  The loan, which was secured by the                
          farm,2 was to be used to make lease payments.  It is unclear from           
          the record whether the lease payments were ever made.                       

               1  Respondent concedes that petitioners are not liable for             
          the accuracy-related penalty under sec. 6662 of $1,037 for the              
          2001 taxable year.  Petitioners concede that they are not                   
          entitled to an IRA deduction of $300 for the 2001 taxable year.             
               2  Petitioners assert that they owned the farm that was used           
          to secure the loan by the USDA.  The circumstances surrounding              
          the ownership of this farm are unclear.                                     

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