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The sole issue is the value of petitioners’ basis in the
property.4
Gross income means all income from whatever source derived,
including gains derived from dealings in property. Sec.
61(a)(3). Gain from the sale of property is defined as the
excess of the amount realized on the sale of the property over
the adjusted basis of the property sold or exchanged. Sec. 1001;
sec. 1.61-6(a), Income Tax Regs.
The amount realized is the sum of any money received plus
the fair market value of any other property received, reduced by
the expenses of selling the property. Sec. 1001(b); Chapin v.
Commissioner, 12 T.C. 235, 238 (1949), affd. 180 F.2d 140 (8th
Cir. 1950). Section 1011 provides that a taxpayer’s adjusted
basis for determining the gain or loss from the sale or other
disposition of property shall be its cost, adjusted to the extent
provided by section 1016. See also sec. 1012. Under section
1016(a)(1), the basis of property must be adjusted for
expenditures, receipts, losses, or other items, properly
4Generally, the burden of proof is on petitioner. Rule
142(a)(1). The burden may shift to the Commissioner under sec.
7491 if the taxpayer establishes compliance with the requirements
of sec. 7491(a)(2)(A) and (B) by substantiating items,
maintaining required records, and fully cooperating with the
Secretary’s reasonable requests. Prior to trial, petitioners did
communicate with respondent; however, they did not cooperate with
respect to producing books and records to substantiate their
expenses. The burden of proof, therefore, does not shift to
respondent under sec. 7491.
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Last modified: May 25, 2011