Mazhar Tabrezi, f.k.a. Agha Hussain, and Sajida Razvi - Page 5

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          outstanding debts were extinguished.  During 2001, four of the              
          notes were partially discharged by the following lenders:                   

                                   Initial Note       Amount of Debt                  
                Creditor             Amount             Canceled                      
               Household            $111,200            $62,707                       
               Countrywide           127,200             74,670                       
               Home Loans                                                             
               Superior              111,200            103,171                       
               Washington            111,200             75,615                       
          The Household Finance debt was canceled on April 27, 2001, and              
          the Superior Federal Bank debt was canceled on March 1, 2001.               
          The remaining debts listed were canceled in 2001.  Petitioners              
          did not include the amounts of debts canceled as income in their            
          2001 joint Federal income tax return.  Petitioners reported a               
          total income in 2001 of $78,416, comprising mostly wages.                   
               On December 29, 2003, respondent issued petitioners a notice           
          of deficiency for the taxable year 2001.  Respondent determined             
          that the amounts of canceled debt from Countrywide Home Loans,              
          Superior Federal Bank, and Washington Mutual should have been               
          included in petitioners’ gross income.  Respondent did not                  
          include the canceled debt of $62,707 from Household Finance in              
          the notice of deficiency but raised it at trial through the                 
          stipulation of related exhibits without explaining that it was a            

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