- 3 - Instead, petitioner negotiated a settlement with MBNA for payment of the balance. MBNA agreed to accept a payment of $11,856 as full accord and satisfaction for the $18,240 balance. Petitioner remitted the $11,856 to MBNA on November 29, 2001. MBNA thereafter issued petitioner a Form 1099-C, Cancellation of Debt, for the $6,384 difference between what petitioner owed on his card and the amount he paid pursuant to the agreement. Petitioner filed his 2001 Federal income tax return timely, reporting gross income of $40,431 from wages and rental income, but he did not include as gross income the $6,384 forgiven by MBNA and reflected on the Form 1099-C. In the notice of deficiency, respondent determined that the $6,384 forgiven by MBNA constituted gross income. The principal issue is whether petitioner is absolved from liability for tax on this forgiveness of indebtedness because of his claim that he was insolvent at the time the indebtedness was forgiven. 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. 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 thePage: Previous 1 2 3 4 5 6 7 Next
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