(petitioners, married couple, had debt cancellation that they claimed was capital gain in nature; wife owned two homes that were both mortgaged and both fell into foreclosure; wife got caught up in home equity theft swindle promoted by lawyer and sells both homes to lawyers agents who get new mortgages processed to pay off the defaulted mortgages; short-term lease also obtained with option allowing wife to buy-back properties; state court voided sale but left new mortgage in place; wife paid off new mortgage; IRS not party to state action and not in privity with wife, lawyers or creditors, so not bound by state court action; wife admits to existence of capital gain when mortgage paid-off, but IRS claims additional amount owed on basis that wife had income on each sale to lawyers at full purchase pice; Tax Court disagreed with IRS position noting that wife received only cash to prepay rent on lease, real estate taxes and cancellation of personal liability on mortgage that was in default; Tax Court determines that gain recognized on discharge of debt is ordinary in nature, not capital; none of debt was qualified principal residence debt, but some could be home equity debt entitling wife to interest deduction up to $100,000 limit).