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card liability. Third, pursuant to the above-referenced
instructions, in a nonlending transaction, such as occurred here,
any nonprincipal amounts are included in the debt. Thus, it
appears that petitioners are incorrectly interpreting the above-
referenced instructions or are incorrectly categorizing their
transaction as a lending transaction.
Further, applicable case law establishes that in situations
where the facts and circumstances are such that indebtedness from
a credit card account is being discharged, the amount of income
as a result of the discharge of this indebtedness is an amount
equal to the difference between the amount due on the obligation
and the amount paid for the discharge, or if no consideration is
paid for the discharge, then the entire amount of the debt is
considered the amount of income that the debtor must include in
income. See Earnshaw v. Commissioner, T.C. Memo. 2002-191, affd.
150 Fed. Appx. 745 (10th Cir. 2005). Accordingly, we conclude
that petitioners received discharge of indebtedness income of
$6,583.
Petitioners alternatively argue that the amount of $6,583
was a reduction of charges agreed to by MBNA in exchange for
petitioners’ prompt payment of $14,937.26. In other words,
petitioners argue that they contested the amount of the debt with
MBNA and that through negotiations it was established that
$14,937.26 was the total amount of petitioners’ credit card debt.
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