- 41 -
borrowed from Huntington; that section does not preclude
petitioners' entitlement to the losses claimed.
Consequently, we hold that petitioners' at-risk amounts with
respect to their investment in MMS encompass the full amount of
the outstanding balances on the Miller/Huntington Loan at the end
of 1992, 1993, and 1994; namely, $750,000, $1,184,930, and
$1,375,000, respectively.
Issue 3. Discharge of Indebtedness
A. Section 61(a) Inclusion
Respondent determined, in the alternative, that in the event
deductions for the 1992, 1993, and 1994 losses were allowed, then
petitioners must recognize $1,350,000 as discharge of indebtedness
income in 1994 (i.e., the amount that the examining agent
determined was the outstanding balance due on the
Miller/Huntington Loan that was paid off or assumed by the Rapp
Group on December 29, 1994).29 Respondent now concedes that the
Rapp Group repaid only $900,000 of the Miller/Huntington Loan in
29 Although the determination in the notice of deficiency
was apparently predicated on the assumption that the outstanding
principal of the Miller/Huntington Loan was approximately
$1,350,000 when the Rapp Group assumed responsibility for it, the
actual figure was $1,375,000. The discrepancy need not concern
us, however, as respondent has now conceded that only $900,000 of
the indebtedness was satisfied by the Rapp Group in 1994.
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