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petitioners. The Form 1099-C reported August 28, 2001, as the
date of the cancellation of debt and $6,583.34 as the amount of
debt canceled.
Petitioners were not insolvent in 2001, nor did they file
for bankruptcy during that year.
Petitioners timely filed their Form 1040, U.S. Individual
Income Tax Return, for the taxable year 2001. Petitioners did
not report any part of the cancellation of indebtedness on their
2001 tax return.
Subsequently, respondent determined that petitioners failed
to report on their tax return for 2001 income from discharge of
indebtedness of $6,583. Accordingly, respondent issued to
petitioners a notice of deficiency determining a deficiency of
$865 in petitioners’ 2001 Federal income tax.
Discussion
As a general rule, the determinations of the Commissioner in
a notice of deficiency are presumed correct, and the taxpayer
bears the burden of proving the Commissioner’s determinations in
the notice of deficiency to be in error. Rule 142(a); Welch v.
Helvering, 290 U.S. 111, 115 (1933). As one exception to this
rule, section 7491(a) places upon the Commissioner the burden of
proof with respect to any factual issue relating to liability for
tax if the taxpayer maintained adequate records, satisfied the
substantiation requirements, cooperated with the Commissioner,
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