Timothy J. Coburn - Page 10

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          loan is nonrecourse, we conclude that any income realized by                
          petitioner on the abandonment of the collateral in satisfaction             
          of the loan is properly treated for Federal income tax purposes             
          as a gain on the sale or other disposition of the collateral                
          rather than discharge of indebtedness income.  Id.; see sec.                
          1.1001-2(a)(1), Income Tax Regs.  Accordingly, we would hold that           
          petitioner realized no discharge of indebtedness income in 2000             
          were we to assume that the underlying liability is nonrecourse.             
               As noted above, respondent’s trial memorandum and opening              
          brief contend that the default resulted in discharge of                     
          indebtedness income to petitioner in 2000.  Respondent’s reply              
          brief surprisingly contends, for the first time, that petitioner            
          is alternatively liable for gain in the amount of $750,000,                 
          representing an amount realized of $750,000 and a basis of zero.            
          However, respondent does not offer any evidence to support                  
          respondent’s contention of a zero basis, and the record contains            
          no such evidence.  Under such circumstances, respondent is                  
          prohibited from raising such an issue for the first time on                 
          brief.  See Smalley v. Commissioner, 116 T.C. 450, 456 (2001).              
          Petitioner would be prejudiced were we to consider such an issue.           
          Indeed, we note that respondent objected to petitioner’s motion             
          for leave to supplement the evidentiary record with evidence of             
          the value and basis of the collateral, filed after respondent’s             
          new argument in respondent’s reply brief, which motion we denied.           

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