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Cancellation of Indebtedness Income
Gross income includes income from the cancellation of
indebtedness. Sec. 61(a)(12). Respondent contends that
petitioner had cancellation of indebtedness income of $2,136 from
American Express.
Petitioner claims that there was no cancellation of debt
because the debt was already paid. He contends that American
Express made a miscalculation, implying that the cancellation was
actually a correction to his account. Petitioner, however,
failed to offer any evidence to show that the debt was paid.
There is also no evidence that any of the exclusions under
section 108(a)(1) applies.
Therefore, petitioner had cancellation of indebtedness
income of $2,136 in 2003.
Section 6662(a) Accuracy-Related Penalty
Respondent determined that petitioner is liable for an
accuracy-related penalty under section 6662(a). Section 6662(a)
imposes a 20-percent penalty on the portion of an underpayment
attributable to any one of various factors, including negligence
or disregard of rules or regulations and a substantial
understatement of income tax. See sec. 6662(b)(1) and (2).
“Negligence” includes any failure to make a reasonable attempt to
comply with the provisions of the Internal Revenue Code,
including any failure to keep adequate books and records or to
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Last modified: November 10, 2007