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790 and 879. Discover addressed both Forms 1099-C to Mrs. De
Shon at her current mailing address. In the Forms 1099-C,
Discover reported that it had canceled the debt due on accounts
790 and 089 of $8,637 and $3,616, respectively, on December 31,
2001. Petitioners did not contact Discover with respect to
either of the Forms 1099-C.
On their Federal income tax return for 2001, petitioners did
not report the amounts reported on the Forms 1099-C.
Respondent determined that petitioners failed to report on
their tax return for 2001 income from the cancellation of
indebtedness of $12,253. Respondent further determined that
petitioners are liable for the accuracy-related penalty for
substantial understatement of income tax.
Discussion
A. Discharge of Indebtedness
1. Applicable Principles
Generally, the Commissioner’s determinations are presumed
correct, and the taxpayer bears the burden of proving that those
determinations are erroneous. Rule 142(a); Welch v. Helvering,
290 U.S. 111, 115 (1933). Under section 7491(a)(1), however, the
burden of proof shifts to the Commissioner if, inter alia, the
taxpayer first introduces credible evidence with respect to any
factual issue relevant to ascertaining the taxpayer’s liability
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