- 4 -
corresponding reduction in assets causes an economic gain and
income to the debtor because the assets are no longer encumbered.
A DOI generally produces income in an amount equal to the
difference between the amount due on the obligation and the
amount paid for the discharge. If no consideration is paid for
the discharge, then the entire amount of the debt is considered
the amount of income which the debtor must include in income.
Sec. 61(a)(12).
Under certain circumstances, a taxpayer may exclude DOI
income from gross income if the discharge occurs when the
taxpayer is insolvent. Sec. 108(a)(1)(B). The exclusion cannot
exceed the amount by which the taxpayer is insolvent. Sec.
108(a)(3). For purposes of this section, "insolvent" is defined
as "the excess of liabilities over the fair market value of
assets." Sec. 108(d)(3). Such a determination is to be made on
the basis of the taxpayer's assets and liabilities immediately
before the discharge. Id. The exclusions provided in section
108 do not apply in this case because the evidence does not
establish that petitioners were insolvent.
Petitioner claims he did not realize DOI income because he
never received the Form 1099-MISC. The Court disagrees. "The
moment it becomes clear that a debt will never have to be paid,
such debt must be viewed as having been discharged." Cozzi v.
Commissioner, 88 T.C. 435, 445 (1987). The nonreceipt of a Form
Page: Previous 1 2 3 4 5 6 Next
Last modified: May 25, 2011