- 4 - rewards offset the $6,831.38 income at issue. However, there is no evidence that any compromise or settlement agreement was entered into between petitioner and the collection agency representing American Express. The agreement simply was that petitioner would pay $15,000 in cash, and the remaining $6,831.38 would be forgiven.2 Gross income includes all income from whatever source 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. Id.; 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 2Where the nature and amount of an indebtedness are contested in a good faith dispute, and a compromise settlement is reached, the excess of the stated principal amount of the claimed debt over the amount for which the liability is settled does not constitute discharge of indebtedness income. Preslar v. Commissioner, T.C. Memo. 1996-543, revd. 167 F.3d 1323 (10th Cir. 1999) (citing United States v. Hall, 307 F.2d 238 (10th Cir. 1962)). There is no evidence that the $15,000 payment by petitioner was a “settlement” or a compromise of the indebtedness. Petitioner presented no evidence to show that the delinquency charges were invalid. Moreover, it appears that, from the terms of the American Express monthly statements, petitioner’s membership rewards points also had no value because the points were good only so long as the account was in good standing. Since petitioner was in default on his account, he was not in good standing, and there is no evidence he reinstated the points by payment of a service fee as provided in the statement.Page: Previous 1 2 3 4 5 6 7 Next
Last modified: May 25, 2011