- 5 -
adjustments to the income, expenses, or the loss of that activity
as reported by petitioner. Respondent’s sole adjustment in the
notice of deficiency is that petitioner realized gross income
from the cancellation of indebtedness by the SEC. Petitioner
contends she was insolvent and, therefore, did not realize gross
income from cancellation of the debt owing to the SEC.
Section 108(a)(1)(B) provides that the discharge of
indebtedness does not constitute gross income when the taxpayer
is insolvent. Respondent made no determination that petitioner
owned assets or had a net worth. At trial, petitioner’s
testimony was that her only asset consisted of an old automobile.
It appears to the Court that the vehicle had only minimal value,
if any. It was not established that petitioner owned a home or
any property, and she testified she virtually “lived out of her
car”. Given this testimony, counsel for respondent acknowledged,
in response to the Court’s query, that respondent had “no
affirmative knowledge” of any assets owned by petitioner, and
this case was brought to trial “to at least see what she at one
time had and we believe that she could get”. Respondent did not
develop at trial evidence of any assets owned by petitioner. The
Court concludes that petitioner was insolvent and, therefore, is
entitled to relief under section 108(a)(1)(B) by reason of
insolvency. Petitioner, therefore, is sustained on the principal
issue. It follows, therefore, that petitioner is not liable for
Page: Previous 1 2 3 4 5 6 7 Next
Last modified: May 25, 2011