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discharge of indebtedness income on their 2004 Federal income tax
return. We hold that they should have done so and therefore
sustain respondent’s determination.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulation of facts, together with the attached exhibits, is
incorporated herein by this reference. At the time they filed
their petition, petitioners resided in Minnesota.
At the end of 1992 petitioner Ancil N. Payne, Jr. (Mr.
Payne), opened a credit card account with MBNA America Bank. Mr.
Payne used the credit card to pay hospital bills and receive cash
advances during periods of unemployment. By April 26, 2004, Mr.
Payne had accumulated $21,407 of credit card debt. At no time
did Mr. Payne challenge the accuracy of this amount. Petitioners
were not insolvent in 2004, nor did they file for bankruptcy.
By October 19, 2004, Mr. Payne and MBNA entered into an
agreement whereby MBNA agreed to accept $4,592 as a full
settlement of the account balance of $21,270, payable in
installments over 4 months.2 Mr. Payne made the necessary
payments, and MBNA issued him a Form 1099-C, Cancellation of
Debt, reporting $16,678 of discharge of indebtedness income.
2 Several of these payments had already been made by the
time the agreement was formalized.
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