T.C. Summary Opinion 2005-177

UNITED STATES TAX COURT

JUSTIN W. ELLIS, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 16393-04S. Filed December 1, 2005.

Justin W. Ellis, pro se.

Caroline R. Krivacka, for respondent.

COHEN, Judge: This case was heard pursuant to the

provisions of section 7463 of the Internal Revenue Code in effect

at the time that the petition was filed. The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority. Unless otherwise indicated,

all section references are to the Internal Revenue Code in effect
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for the year in issue, and all Rule references are to the Tax

Court Rules of Practice and Procedure.

Respondent determined a deficiency of $2,609 in petitioner’s

Federal income tax for 2002. The issue for decision is whether

petitioner received $11,628 of income from cancellation of

indebtedness owed to General Motors Acceptance Corp. (GMAC).

Background

The undisputed facts, as stated by petitioner, are as

follows:

The Petitioner incurred an obligation to General

Motors Acceptance Corporation (hereinafter “GMAC”) in

the original amount of $14,435.99, in conjunction with

the acquisition of a 2001 Saturn SL1 vehicle from

Saturn of Knoxville on April 28, 2001. This obligation

was payable through 39 monthly payments of $367.41,

beginning April 28, 2001. The Petitioner failed to pay

the monthly payments in accordance with this contract,

and the General Motors Acceptance Corporation declared

the obligation in default and repossessed the vehicle. 

The vehicle was then sold, and the deficiency

obligation then remaining and due and owing General

Motors Acceptance Corporation was $11,628.77. Demand

was made upon the Petitioner for payment of this

deficiency obligation by letter from GMAC dated

December 21, 2001. * * *

It is also undisputed that GMAC sent a Form 1099-C, Cancellation

of Debt, to petitioner and to the Internal Revenue Service in

2002, reporting that petitioner received cancellation of

indebtedness income in 2002 in the amount of $11,628. Petitioner

contends that GMAC never released, canceled, nor discharged his

obligation and that the Form 1099-C was erroneous.
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By notice served May 11, 2005, this case was set for trial

in Knoxville, Tennessee, on October 17, 2005. On July 19, 2005,

respondent filed a Motion for Summary Judgment and a Memorandum

in Support of Motion for Summary Judgment. Attached to the

memorandum were records of GMAC concerning petitioner’s account

with GMAC. Those records of GMAC include correspondence sent to

GMAC by petitioner in response to GMAC’s demand on him dated

December 21, 2001. For example, by document dated February 12,

2002, petitioner made a “good faith Offer to pay off in full the

alleged debt to GMAC.” Petitioner further demanded

“verification” of the debt and contended that the debt would be

discharged if GMAC did not comply with petitioner’s demands. In

a document dated April 1, 2002, petitioner claimed that, by

reason of GMAC’s alleged default, petitioner’s debt “is now fully

discharged and that you will not make any credit reporting that

adversely affects me without incurring a major commercial

liability.”

In respondent’s Motion for Summary Judgment, respondent

asserts:

8. The exhibits to the respondent’s memorandum of

law show plainly that the petitioner, in his

correspondence with GMAC, has taken the position that

the debt was cancelled. There is no dispute as to the

fact that GMAC cancelled a debt in 2002 and the

petitioner has failed to raise any exceptions to the

taxability of the cancelled debt.
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Respondent’s motion was set for the time previously set for

trial of the case. When the case was called for trial,

petitioner was not prepared to present any evidence and requested

a continuance. Petitioner’s motion for continuance was denied,

but he was allowed 30 days to respond to respondent’s Motion for

Summary Judgment. In Petitioner’s Response to Motion for Summary

Judgment, he asserts the facts quoted above but does not address

his prior communications to GMAC in which he claimed that the

debt was discharged. Petitioner does not suggest, and GMAC’s

records do not show, that any attempt by GMAC to collect the sums

due from petitioner was made at any time after petitioner’s

correspondence to GMAC.

Discussion

Summary judgment is appropriate where there is no genuine

issue as to any material fact, and a decision may be rendered as

a matter of law. Rule 121(b). Summary judgment is intended to

expedite litigation and to avoid unnecessary and expensive

trials. See Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681

(1988). Petitioner was not ready for trial when his case was

called, and the next session in Knoxville would not be

anticipated for another year. In any event, petitioner has not

identified any facts or evidence that would be presented at trial

to controvert the undisputed facts already in the record. See

Rule 121(d), providing, in pertinent part, that a response “must
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set forth specific facts showing that there is a genuine issue

for trial.” Petitioner’s opposition to the Motion for Summary

Judgment argues that he is entitled to a ruling as a matter of

law. We conclude that the material facts are not disputed and

that judgment may be rendered as a matter of law.

Section 61(a)(12) specifically identifies cancellation of

indebtedness as an item includable in gross income. In Cozzi v.

Commissioner, 88 T.C. 435, 445 (1987), the Court stated:

The general theory is that to the extent that a

taxpayer has been released from indebtedness, he has

realized an accession to income because the

cancellation effects a freeing of assets previously

offset by the liability arising from such indebtedness. 

United States v. Kirby Lumber Co., 284 U.S. 1 (1931). 

Whether a debt has been discharged is dependent on the

substance of the transactions. Mere formalisms

arranged by the parties are not binding in the

application of the tax laws. Commissioner v. Court

Holding Co., 324 U.S. 331 (1945). Consequently, the

surrender or failure to surrender a note is not

determinative of the release of liability. Seay v.

Commissioner, T.C. Memo. 1974-305.

The moment it becomes clear that a debt will never

have to be paid, such debt must be viewed as having

been discharged. The test for determining such moment

requires a practical assessment of the facts and

circumstances relating to the likelihood of payment. 

* * * Any “identifiable event” which fixes the loss

with certainty may be taken into consideration. United

States v. S.S. White Dental Mfg. Co., 274 U.S. 398

(1927).

Notwithstanding the arguments he made in his correspondence with

GMAC, petitioner now argues that GMAC did not execute a formal

release in writing or otherwise indicate its intent to release

and discharge petitioner. Sending the Form 1099-C, however, is
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evidence that GMAC did not intend to pursue collection of

petitioner’s debt. This evidence is corroborated by cessation of

collection activities in 2002. Our practical assessment of the

facts and circumstances is that the debt will never have to be

paid and has been discharged. Respondent’s Motion for Summary

Judgment will be granted.

An appropriate order and 

decision will be entered.