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repaid the loan owed to them. By the time petitioners realized,
in 2001, that the loan they had made in 2000 would never be
repaid, petitioners had incurred more than $100,000 in credit
card debt.
Petitioners considered filing for bankruptcy, but decided
instead to negotiate with the credit card companies to extinguish
their debts by paying a lesser sum than was owed. Petitioners
succeeded in making these arrangements in 2002 and in 2003. The
amount by which their credit card debt exceeded their actual
payment (i.e., the amount of relief from indebtedness) was
$77,265 in 2003, the tax year in issue.1 Petitioners did not
include this amount in income for 2003. Respondent determined
that such discharge of indebtedness should have been included in
income and accordingly determined a deficiency in petitioners’
2003 Federal income tax.
Discussion
As a general rule, the Commissioner’s determinations in the
notice of deficiency are presumed correct, and the burden of
proving an error is on the taxpayer. Rule 142(a); Welch v.
Helvering, 290 U.S. 111, 115 (1933).
1The cancellation of indebtedness occurred on two occasions:
Feb. 3, 2003, in the amount of $62,040 and May 12, 2003, in the
amount of $15,225.
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