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In May 1996, Khen Thi Huynh (petitioner) became unemployed.
He remained unemployed for the remainder of 1996 and throughout
1997. Because of petitioner's unemployment, petitioners
satisfied one of the contingencies provided by the credit card
insurance policies they carried. Accordingly, payments were made
during 1996 and 1997 by the insurance companies to the various
banks that had issued the credit cards in partial payment of
amounts due by petitioners on their credit cards. As of the end
of 1996, petitioners owed a total of $91,333.25 on their credit
cards. The record does not reflect the total amount owed as of
the end of 1997; however, that amount appears to have been
substantial. During 1997, the interest accruing on and charged
to petitioners' credit cards totaled $12,949.27. In addition,
during 1997, the credit card insurance premiums, all charged to
the credit cards, totaled $3,714.46.
Pursuant to the terms of the credit card insurance
contracts, the various insurance companies paid $9,719 during
1996 and $9,631 during 1997 to the various banks in partial
payment of petitioners' credit card debts. Petitioners did not
include these amounts as income on their Federal income tax
returns for 1996 and 1997. In the notices of deficiency,
respondent determined that these amounts constituted gross
income.
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