TAX COURT OPINION

Case: Phuongtruc Cao Nguyen
Docket Number: 4556-16
Judge: Goeke
Opinion Type: bench
Filed: 11/09/2017
Pages: 8

SEC UNITED STATES TAX COURT WASHINGTON, DC 20217 PHUONGTRUC CAO NGUYEN, Petitioner(s), v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. 4556-16. ) ) ) ) ORDER Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit herewith to petitioner and to respondent a copy of the pages of the transcript of the trial in the above case before Judge Joseph Robert Goeke at Los Angeles, California containing his oral findings of fact and opinion rendered at the trial session at which this case was heard. In accordance with the oral findings of fact and opinion, a decision will be entered for respondent. (Signed) Joseph Robert Goeke Judge Dated: Washington, D.C. November 9, 2017 SERVED Nov 13 2017 3 1 2 3 4 5 6 7 8 9 Bench Opinion by Joseph Robert Goeke October 18, 2017 Phuongtrac Cao Nguyen v. Commissioner Docket No. 4556-16 THE COURT: The Court has decided to render oral Findings of Fact and Opinion in this case, and the following represents the Court's oral Findings of Fact and Opinion. The oral Findings of Fact and Opinion shall not be relied upon as precedent in any other case. This 10 opinion is rendered pursuant to the authority provided by 11 12 13 14 Internal Revenue Code section 7459(b) and Rule 152 of the Tax Court Rules of Practice and Procedure. The section references, herein after, are to the Internal Revenue Code in effect for the year 2013, and 15 Rule references are to the Tax Eede Rules of Practice and 16 Procedure. 17 18 The Court has jurisdiction over the present case under section 6213, as the Respondent issued a notice of 19 deficiency, which was timely petitioned. The Petitioner 20 was a resident of California when she filed her petition 21 22 in this case. She received a notice of deficiency from the Internal Revenue Service, which was mailed to her in 23 December 2015. The notice of deficiency asserted a 24 deficiency in federal income tax for the taxable year 2013 25 that resulted from the Petitioner's failure to report (973)406-2250|operations@escribers.net|wwwescriber5J1et 4 forgiveness of indebtedness income on her income tax return, which she filed for 2013. The inclusion of the forgiveness of indebtedness income results in certain other computational adjustments, which were also included in the notice of deficiency. The Petitioner maintains that the forgiveness of indebtedness income is not taxable in 2013, and she also asserts that she was insolvent at the time she is alleged to have received the forgiveness of indebtedness income and that, therefore, the income is excludable under section 108(a)(1)(B). We first note that the Petitioner has the burden 1 2 3 4 5 6 7 8 9 10 11 12 13 of proof under Rule 142(a) and that she has not offered a 14 basis on which the burden of proof would shift to the 15 Respondent under section 7491(a). 16 17 The Petitioner owed Citibank credit card debt in 2009. In 2010, a collection case was commenced in 18 California Superior Court, and she ultimately settled that 19 case in 2012 based upon a conditional agreement to pay 20 $6,000 of the debt in monthly installments of $500 each, 21 which corresponds to the amount of income at issue in the 22 case if her $6,000 payment is subtracted from the alleged 23 total balance she owed Citibank. 24 25 Citibank issued a form 1099-C to the Petitioner for the year 2013 asserting forgiveness of indebtedness (973)406-2250|operations@escribers.net|www.escribers.net 5 1 2 3 4 5 6 7 8 9 income of roughly $7,000. The documents submitted in the record of the case reflect that the case in California Superior Court was not dismissed pursuant to the conditional agreement until 2013. The record of trial in this case consists of a Stipulation of Facts, related exhibits, and other exhibits which were admitted at trial, and also testimony which was taken over parts of two days. The trial focused on 10 whether the Petitioner was insolvent in 2013 when she is 11 alleged to have received the forgiveness of indebtedness 12 13 14 15 16 17 income. The Petitioner had gross income, which she reported on her income tax return for 2013, of $56,373. And she reported taxable income of $25,335. As part of the stipulated exhibits, there is a schedule the Petitioner submitted reflecting liabilities 18 greater than assets. But based upon her own testimony, 19 this schedule is fraught with errors and does not provide 20 a basis on which the case could be resolved. 21 22 Petitioner included in her alleged liabilities credit card debts that are actually owed by her mother. 23 She rationalized these debts were her liabilities because 24 she had obtained a credit card for use on her mother's 25 accounts. These debts that Petitioner alleges were her BEllilB (973)406-2250|operations@escríbers.net|www.escribers.net 6 debts, which were actually in her mother's name, are approximately $30,000. Based upon the testimony at trial and other documents submitted, our best estimate of the actual debts the petitioner had in 2013 is that they approximate $16,000. She also included assets on the schedule submitted at trial, and she testified extensively about these assets. It's clear that the original values she 1 2 3 4 5 6 7 8 9 10 included were also incorrect. We have tried to 11 12 reconstruct the actual value of these assets based upon how much could be obtained by reselling the assets which 13 would approximate their fair market value. 14 15 The assets included Chanel bags, which we value at roughly $5,000, Prada bags, which, based upon 16 Petitioner's testimony, we value at approximately $2,500, 17 18 a watch, which, based upon Petitioner's testimony, we value at $6,000, certain other handbags, and other 19 property, including clothing, and diamond earrings, which, 20 based upon Petitioner's testimony, we value at $2,000. 21 Petitioner's schedule also included bank assets, 22 which, based upon her testimony and the documents in the 23 record, we value at approximately $2,400. And Petitioner 24 listed a brokerage account, which she stated had assets 25 worth roughly $1,800. She also valued other assets, 73)406-2250|operationseescribers.netlwww.escribers.net including household furnishings and clothing, which we would value at roughly $5,000 based upon the entire record 7 of trial. Given these estimates, the overall value of Petitioner's assets would be at least $20,000 based upon the evidence submitted at trial. Given the fact that this exceeds any reasonable estimate that Petitioner established for her liabilities, based upon the record at trial, Petitioner's assets exceed her liabilities. 1 2 3 4 5 6 7 8 9 10 Petitioner argued that her mother had a cause of 11 action against her for the amount of the credit card debt, 12 which she incurred on credit cards for which her mother 13 was liable but for which she had access to a card. i 14 Petitioner has failed to establish any legal obligation on 15 her part to pay her mother for this alleged debt. 16 17 Section 61(a)(12) provides the general rule that gross income includes income from the cancellation or 18 discharge of indebtedness. United States v. Kirby Lumber 19 Company, 284 U.S. 1 (1931); see also section 1.61-12(a) 20 21 income tax regulations. The includable amount in income is the 22 difference between the face value of the debt and the 23 amount paid in satisfaction of the debt: Babin 24 v. Commissioner, 23 F.3d 1032 (Sixth Circuit, 1994), 25 affirming T.C. Memo 1992-673. (973)406-2250|operations@escribers.net|www.escribers.net 8 The Internal Revenue Code carves out an exception for recognition of forgiveness indebtedness income under section 108(a)(1). The exception in question in this case would arise if the discharge occurs when the taxpayer is insolvent under (B). For the reasons we stated in analyzing the facts of this case, Petitioner has failed in her burden of proof to establish that she was insolvent, and that section 108 would relieve her of the forgiveness of indebtedness income. We also note that the year in which Petitioner 1 2 3 4 5 6 7 8 9 10 11 12 must recognize the forgiveness of indebtedness income is 13 the year in which it becomes clear that the debt will 14 never be repaid and that the debtor must be viewed as 15 discharged: Cozzi v. Commissioner, 88 T.C. 435, 445 16 (1987). The determination of this event oftentimes does 17 18 19 coincide with the issuance of the form 1099-C, but the issuance of the form 1099-C is not dispositive. We determine that the year 2013 is the 20 appropriate year based upon documents submitted at trial, 21 which reflect that the settlement agreement reached in the 22 California Superior Court became final in 2013. 23 As a result of our analysis, a decision will be 24 entered for Respondent. This concludes the Court's oral 25 Findings of Fact and Opinion in this case. 73)406-2250|operations@escribersmet|www.escribers.net . 9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 We'll go off the record. (Whereupon, at 10:09 a.m., the above-entitled matter was concluded.) (973)406-2250loperations@escribers.netlwww.escribers.net