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Petitioners did not report the $39,275 discharge of indebtedness
as income on the return.
Citibank sent petitioners a Form 1099-C, Cancellation of
Debt, reporting the $39,275 discharge of indebtedness. After
petitioners received the Form 1099-C, Ms. Young prepared and
petitioners filed an amended return that reported the $39,275 as
gain on the sale of their residence that was excludable from
income.
Discussion
A. Deficiency
In general, the Commissioner’s determinations set forth in a
notice of deficiency are presumed correct, and the taxpayer bears
the burden of showing that such determinations are in error.
Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).
Section 7491(a)(1) provides that the burden of proof as to
factual matters shifts to the Commissioner under certain limited
circumstances. Petitioners do not fall within these limited
circumstances, and therefore the burden of proof remains with
them.
Generally, discharge of indebtedness gives rise to gross
income to the obligor. Sec. 61(a)(12); see Gitlitz v.
Commissioner, 531 U.S. 206, 213 (2001). Section 108 provides
certain exceptions to this general rule. Pursuant to one of
these exceptions, income from discharge of indebtedness is
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Last modified: May 25, 2011