- 4 - v. Helvering, 290 U.S. 111, 115 (1933). The burden of proof may shift to the Commissioner under section 7491 in certain circumstances. See Prince v. Commissioner, T.C. Memo. 2003-247. The issue in this case is a question of law and does not depend on which party has the burden of proof. A. Discharge of Indebtedness Gross income includes all income from whatever source derived. Sec. 61(a). Discharge of indebtedness is specifically included as an item of gross income. Sec. 61(a)(12). This means that a taxpayer who has incurred a financial obligation, which obligation is later discharged or released, has realized an accession to income. Sec. 61(a)(12); United States v. Kirby Lumber Co., 284 U.S. 1, 3 (1931); Friedman v. Commissioner, 216 F.3d 537, 545 (6th Cir. 2000), affg. T.C. Memo. 1998-196. The rationale of this principle is that the discharge of a debt below the face value of the debt accords the debtor an economic benefit equivalent to income. Friedman v. Commissioner, 216 F.3d at 545. The treatment of discharge-of-indebtedness income parallels the Code's treatment of loans. Toberman v. Commissioner, 294 F.3d 985, 988 (8th Cir. 2002), affg. in part and revg. in part T.C. Memo. 2000-221. Borrowed funds are not included in a taxpayer’s income. Nor are repayments of a loan deductible from income. When, however, one’s obligation to repay the funds is settled for less than the amount of the loan, one ordinarilyPage: Previous 1 2 3 4 5 6 7 Next
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