T.C. Summary Opinion 2009-180
UNITED STATES TAX COURT
THOMAS JOSEPH LINKUGEL, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 28895-08S. Filed December 1, 2009.
Ljubomir Nacev and Mary A. Lepper, for petitioner.
Edward Lee Walter, for respondent.
ARMEN, Special Trial Judge: This case was heard pursuant to
the provisions of section 7463 of the Internal Revenue Code in
effect when the petition was filed.1 Pursuant to section
7463(b), the decision to be entered is not reviewable by any
1
Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for the
taxable year in issue, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
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other court, and this opinion shall not be treated as precedent
for any other case.
Respondent determined a deficiency in petitioner’s 2006
Federal income tax of $6,446, as well as a penalty under section
6662(a) of $1,289. Respondent subsequently conceded the penalty.
The central issue for decision is whether petitioner must
recognize cancellation of indebtedness (COI) income in 2006 and
if so, in what amount. Because we hold that petitioner did not
have COI income in 2006, we need not and do not discuss the
subsidiary issue.
Background
This case was submitted fully stipulated under Rule 122, and
the stipulated facts are so found. The stipulation of facts and
the attached exhibits are incorporated herein by this reference.
Petitioner resided in the State of Kentucky when the petition was
filed.
In 1983 petitioner and his then wife purchased a home in
Newport, Kentucky. In 1999 they executed a mortgage on the
Newport property in favor of Associates Home Equity Services,
Inc. (Home Equity).
Petitioner and his then wife fell into arrears on the
mortgage held by Home Equity. In June 2000 Home Equity secured
an In Rem Judgment and Order of Sale in the Campbell County
Circuit Court against petitioner and his then wife of $58,796.54.
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The Newport property was sold in foreclosure in August 2000.
After payment of the costs of sale and other expenses and
application of the sale proceeds, the balance of the in rem
judgment was reduced to $35,247.00. In November 2000 petitioner
and his then wife divorced.
In November 2000 Citigroup, the parent company of
Citimortgage, Inc. (Citimortgage), acquired Home Equity, thereby
succeeding to the mortgage given by petitioner and his then wife
to Home Equity. www.citibank.com/citi/corporate/history/
associates.htm; See Fed. R. Evid. 201.
In 2007 Citimortgage issued a Form 1099-C, Cancellation of
Debt, jointly to petitioner and his ex-wife which reported
$35,247.81 in income from cancellation of debt for the taxable
year 2006. The Form 1099-C was sent to petitioner and his ex-
wife at the Newport address and was therefore not received by
petitioner. Between the date of foreclosure in August 2000 and
the issuance of the Form 1099-C in 2007, no collection efforts
were made by either Home Equity or Citimortgage.
Petitioner filed a timely individual income tax return for
2006, but did not include the COI income on the return.
In a notice of deficiency respondent increased petitioner’s
income by the amount reported as COI income on the Form 1099-C.
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Discussion
A. Burden of Proof
We begin by observing that the submission of a case fully
stipulated does not alter either the burden of proof or the
requirements otherwise applicable with respect to adducing proof
or the effect of failure of proof. Rule 122(b).
As a general rule, the Commissioner’s determinations as set
forth in a notice of deficiency are presumed correct, and the
taxpayer bears the burden of proving that those determinations
are erroneous. Rule 142(a)(1); Welch v. Helvering, 290 U.S. 111,
115 (1933). However, under certain circumstances the burden of
proof may shift to the Commissioner if the taxpayer introduces
credible evidence with respect to any factual issue relevant to
ascertaining the income tax liability of the taxpayer. Sec.
7491(a)(1).
If an information return, such as a Form 1099-C, serves as
the basis for the determination of a deficiency, section 6201(d)
may apply to shift the burden of production to the Commissioner.
See Estate of Gryder v. Commissioner, T.C. Memo. 1993-141 (citing
Portillo v. Commissioner, 932 F.2d 1128 (5th Cir. 1991), affg. in
part and revg. in part T.C. Memo. 1990-68). Section 6201(d)
provides that in any court proceeding, if a taxpayer asserts a
reasonable dispute with respect to the income reported on an
information return and the taxpayer has fully cooperated with the
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Commissioner, then the Commissioner has the burden of producing
reasonable and probative information in addition to such
information return. See McQuatters v. Commissioner, T.C. Memo.
1998-88.
Petitioner contends that section 6201(d) applies.
Petitioner further contends that the COI income reported on the
Form 1099-C for 2006 was actually discharged in some earlier
year.
Respondent has not refuted the application of section
6201(d). Indeed, respondent has not even argued (and the record
does not demonstrate) that petitioner failed to fully cooperate
with respondent. Therefore, we hold that section 6201(d) applies
and that the burden is shifted to respondent to produce
reasonable and probative information in addition to the Form
1099-C.
B. Cancellation of Indebtedness Income
In general, the term “income” as used in the Internal
Revenue Code means income from any source, including income from
the discharge of indebtedness. Sec. 61(a)(12); Commissioner v.
Glenshaw Glass Co., 348 U.S. 426 (1955); United States v. Kirby
Lumber Co., 284 U.S. 1 (1931). For the year in issue
Citimortgage issued to petitioner a Form 1099-C which reported
COI income of $35,247.81. According to respondent, that amount
is includable in petitioner’s 2006 income.
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However, the moment it becomes clear that a debt will never
be repaid, that debt must be viewed as having been discharged.
Cozzi v. Commissioner, 88 T.C. 435, 445 (1987). Any identifiable
event that fixes the loss with certainty may be taken into
consideration. Id. (citing United States v. S.S. White Dental
Manufacturing Co., 274 U.S. 398 (1927)); cf. sec. 1.6050P-
1(b)(2)(i), (iv), Income Tax Regs. (providing an exclusive list
of eight “identifiable events” under which debt is discharged for
information reporting purposes, including a discharge pursuant to
a foreclosure, the application of a defined policy of the
creditor to discontinue collection activity and discharge the
debt, or the expiration of a nonpayment testing period (usually
36 months)).
The determination of whether COI has occurred is fact
specific and often turns on the subjective intent of the creditor
as manifested by an objectively identifiable event. Cozzi v.
Commissioner, supra. The issuance of a Form 1099-C is an
identifiable event, but it is not dispositive of an intent to
cancel indebtedness. Owens v. Commissioner, T.C. Memo. 2002-253,
affd. in part, revd. in part and remanded 67 Fed. Appx. 253 (5th
Cir. 2003). Moreover, a mere bookkeeping entry by a creditor
does not result in COI income. Cozzi v. Commissioner, supra.
In August 2000 petitioner’s home was sold in foreclosure and
the proceeds were used to partially satisfy an in rem judgment
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held by Home Equity. The balance of the in rem judgment was held
by Home Equity for 4 months and by Citimortgage for more than 6
years after Citimortgage acquired Home Equity. From the time of
the foreclosure in August 2000 to the issuance of the Form 1099-C
in 2007, there was no collection activity by either Home Equity
or Citimortgage. In addition, the Form 1099-C was sent to
petitioner at the Newport address in 2007, thereby demonstrating
that collection on the debt had not been pursued since 2000.
Finally, in several cases before this Court in which a mortgage
was foreclosed upon, generating COI income, the Form 1099-C was
issued in the same year as the foreclosure, indicating that the
foreclosure was the identifiable event. See, e.g., Jelle v.
Commissioner, 116 T.C. 63 (2001); Stoddard v. Commissioner, T.C.
Memo. 2002-31; Johnson v. Commissioner, T.C. Memo. 1999-162,
affd. without published opinion 211 F.3d 1265 (4th Cir. 2000).
In support of respondent’s assertion that the COI occurred
in 2006, respondent relies solely on a naked Form 1099-C.
Respondent did not present one scintilla of other evidence to
support the incidence of COI income in 2006. Respondent has not
met his burden of production under section 6201(d). Therefore,
we hold that petitioner did not have COI income in 2006.
To reflect the foregoing,
Decision will be entered
for petitioner.