Mazhar Tabrezi, f.k.a. Agha Hussain, and Sajida Razvi - Page 7

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          1971); Cascade Milling & Elevator Co. v. Commissioner, 25 B.T.A.            
          946 (1932), respondent conceded that the COD income from the                
          discharge of the three mortgages (Countrywide Home Loans,                   
          Superior Federal Bank, and Washington Mutual) identified in the             
          notice of deficiency qualified under the exception to COD income            
          provided in section 108(a)(1)(B) because petitioners were                   
          insolvent on the dates those mortgages were discharged.  The new            
          adjustment claimed by respondent to be COD income is $62,707,               
          while the three mortgages respondent treated in the notice of               
          deficiency as giving rise to COD income totaled $253,456.                   
          Therefore, since there is no assertion of an overall increase in            
          deficiency, this case does not fall under section 6214.  However,           
          by claiming that an amount arising from a different mortgage is             
          COD income, respondent has raised a new matter and therefore                
          under our Rules has the burden of proof in regard to that claim.            
          B.   Burden of Proof                                                        
               Gross income includes income from the cancellation of                  
          indebtedness.  Sec. 61(a)(12).  However, an exception to the                
          inclusion of COD income in gross income is provided for taxpayers           
          who are insolvent at the time of cancellation of indebtedness.              
          Sec. 108(a)(1)(B).  The determination of insolvency is based on             
          the taxpayer’s liabilities and assets immediately before the                
          discharge of debt.  Sec. 108(d)(3).  Petitioners claim that they            
          were insolvent on the calculation date.  Normally, the burden of            

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