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of North Carolina. A discharge was granted on April 7, 2000.
The Apple loan was not discharged as a part of the bankruptcy
proceedings.2
In 2003, approximately $7,807 of the Apple loan debt
remained unpaid, and the debt was canceled by EduCap, Inc.
(EduCap), the successor to University Support Services and then-
current holder of the loan. EduCap mailed Mr. Schachner a Form
1099-C, Cancellation of Debt, reporting the $7,807 discharge of
indebtedness.3 At trial, Mr. Schachner testified that he did not
receive it.
Respondent’s determination of a deficiency in petitioners’
Federal income tax for the taxable year 2003 was solely
attributable to petitioners’ failure to report the cancellation
of indebtedness income.
2 The Application & Promissory Note makes it clear that the
Apple loan is not dischargeable in bankruptcy during the first 7
years of repayment. Additionally, the Apple loan was found to be
nondischargeable pursuant to a Stipulated Order Determining
Character and Treatment of Claim of University Support Services
entered as a part of the ch. 13 bankruptcy proceedings.
3 Despite the fact that the Application & Promissory Note
made Mr. Schachner and his mother-in-law jointly and severally
liable for the Apple loan, neither University Support Services
nor its successor, EduCap, Inc., appears to have regarded Mr.
Schachner’s mother-in-law as a debtor or looked to her for
repayment of the loan. This approach is consistent with the
issuance of the Form 1099-C to Mr. Schachner in the full amount
of the discharged debt.
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Last modified: May 25, 2011