Marcia Ann Coppertino - Page 5

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          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 that is             
          later discharged or released has realized an accession to income.           
          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 effects the freeing of assets previously                
          offset by the liability.  Jelle v. Commissioner, 116 T.C. 63, 67            
          (2001) (citing United States v. Kirby Lumber Co., supra).                   
               Petitioner does not challenge the principle that discharge             
          of indebtedness constitutes gross income.  Her sole argument is             
          that she was insolvent at the time she was relieved of this                 
          liability, and, therefore, the discharged indebtedness does not             
          constitute gross income.  Under section 108(a)(1)(B), gross                 
          income does not include any amount that would be includable in              
          gross income by reason of the discharge of the indebtedness of              
          the taxpayer if the taxpayer was insolvent at the time the                  
          indebtedness was discharged.                                                
               On her Federal income tax return for 2001, the year at                 
          issue, petitioner reported no wage or salary income or any other            
          income.  She reported a business loss of $3,128 on a Schedule C.            
          That activity was identified as The All American Herbal Health              
          Clinic.  In the notice of deficiency, respondent made no                    





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