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balance of $21,270 resulted in $16,678 of discharge of
indebtedness income to petitioners. Petitioners bear the burden
of proving respondent’s determination incorrect.4 See Rule
142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).
I. Reduction of Purchase Price
Petitioners contend that their settlement with MBNA did not
result in the discharge of indebtedness but was rather a
retroactive reduction of the rate of interest charged by MBNA and
thus a reduction of the “purchase price” of the loans under
section 108(e)(5). Although the record does not indicate that
MBNA agreed to retroactively reduce the rate of interest of its
loans to petitioners, petitioners have nevertheless painstakingly
calculated the various interest rates that applied to their
outstanding balances from October 1994 through October 2004 and
attempt to show that by the time of their settlement they had
paid back all of the principal they had borrowed from MBNA.
Section 108(e)(5) provides an exception to section 61(a)(12)
where the buyer of property negotiates with the seller/creditor
for a discharge of all or part of the purchase money
indebtedness. Commonly such a discharge reflects a decline in
the value of the property. The resulting discharge of
4 Petitioners do not argue that the burden of proof shifts
to respondent pursuant to sec. 7491(a) and that the threshold
requirements of sec. 7491(a) have been met. In any event, we
decide the issue on the basis of the preponderance of evidence on
the record.
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