Gilbert Hahn, Jr. and Margot H. Hahn - Page 8
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279 U.S. 716 (1929), for example, an employer paid an employee’s
State and Federal income tax liabilities. The payment
constituted income because “The discharge by a third person of an
obligation to * * * [a taxpayer] is equivalent to receipt by the
person taxed.” Id. at 729. In Harris v. Commissioner, T.C.
Memo. 1975-125, affd. without published opinion 554 F.2d 1068
(9th Cir. 1977), discharge of indebtedness income included loan
principal as well as interest, taxes, penalties, and trustee and
attorney’s fees. In Jelle v. Commissioner, supra, discharge of
indebtedness income included interest on a mortgage that was
partially forgiven. See also Earnshaw v. Commissioner, T.C.
Memo. 2002-191 (discharge of indebtedness income included a cash
advance fee posted to the taxpayer’s account), affd. 150 Fed.
Appx. 745 (10th Cir. 2005); Seay v. Commissioner, T.C. Memo.
1974-305 (taxpayer realized discharge of indebtedness income
although he never received cash).
We also disagree with petitioner’s contention that he
“received no payment of cash, property, or anything else of value
when he allegedly became liable for the [related items].” The
right to use money represents a valuable property interest. Fed.
Home Loan Mortgage Corp. v. Commissioner, 121 T.C. 254, 259
(2003). When viewed most favorably to respondent, the facts
indicate that petitioner had use of the borrowed funds beyond the
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Last modified: November 10, 2007