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FDIC’s issuance and filing of the Form 1099-C with respect to the
loan, while not dispositive, is certainly an identifiable event
that is evidence of an intention to cancel the loan, as is the
FDIC’s reclassification of the loan as a “dormant account”
pursuant to established internal procedures.8 The only evidence
that is perhaps inconsistent with an intention on the part of the
FDIC to cancel the loan in 1994 is the November 7, 1994, letter
from Mr. Eckstine to petitioner. Given the prevailing
“identifiable event” standard and the state of the evidence, we
conclude that respondent’s position with respect to the discharge
of indebtedness issue had a reasonable basis in both law and fact
and therefore was substantially justified within the meaning of
section 7430(c)(4)(B)(i).
Petitioners cite Portillo v. Commissioner, 988 F.2d 27 (5th
Cir. 1993), revg. T.C. Memo. 1992-99, in support of their
argument that respondent’s position with respect to the discharge
of indebtedness issue was not substantially justified. In
Portillo, the Court of Appeals for the Fifth Circuit reversed a
Memorandum Opinion of this Court that denied the taxpayers’
motion for litigation costs. In so doing, the Court of Appeals
8 While the term “dormant” does not necessarily signify an
intent on the part of the FDIC to cancel the loan, the language
of the FDIC’s “Dormant Account Status Approval Form” for the loan
in some respects evidences such an intent (e.g., “This memorandum
is a request for Authorization to write off the remaining
balance”).
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Last modified: May 25, 2011