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First Madisonville made unsuccessful attempts to collect on
the final renewal note. Efforts to foreclose on the security
were frustrated by another creditor with priority with respect to
the pledged assets. Consequently, the bank determined that it
would not be financially worthwhile to pursue legal action
against petitioner or the corporation.
In 1997, First Madisonville determined that the final
renewal note was uncollectible and issued to petitioner a Form
1099-C, Cancellation of Debt, which reported discharge of
indebtedness income of $51,792 for that year (the Form 1099-C
income).
Petitioner filed a 1997 Form 1040, U.S. Individual Income
Tax Return. Petitioner did not report the Form 1099-C income on
that return. In a notice of deficiency dated October 20, 1999,
respondent determined a deficiency in petitioner’s 1997 Federal
income tax. Among other adjustments made in the notice of
deficiency, respondent increased petitioner’s 1997 income by the
amount of the Form 1099-C income. Petitioner did not petition
this Court in response to that notice and the deficiency and
related amounts were assessed in due course.
On October 24, 2001, respondent mailed to petitioner a final
notice of intent to levy with respect to his outstanding 1997
Federal income tax liability.
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Last modified: May 25, 2011