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Neither the trustee nor petitioner satisfied the two
deficiencies, totaling $197,500 (the CMI deficiencies), in any
amount.
On April 15, 1994, the trustee made a final report to the
bankruptcy court (trustee’s final report), reporting that the
total of the debts allowed was $52,590.14 and that the sum of
$47,673.98 was to be paid in respect of those claims, leaving the
sum of $4,916.16 unpaid. The bankruptcy court accepted the
trustee’s final report. The bankruptcy court issued a final
decree closing the bankruptcy case of petitioner on May 5, 1995.
Neither the bankruptcy estate nor petitioner reported any
income from discharge of indebtedness on any Federal income tax
return.
Petitioners made joint returns of income for the audit years
and, on those returns, claimed that petitioner had available for
use by him for those years a $153,000 NOL resulting from the
worthlessness of the business debt. Following his audit of
petitioners’ returns for the audit years, respondent disallowed
the claimed NOL carryover.
Discussion
Section 61(a)(12) includes as an item of gross income
“Income from discharge of indebtedness”. Section 108(a)(1)(A)
provides that gross income does not include income from the
discharge of indebtedness if “the discharge occurs in a title 11
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