TAX COURT OPINION

Case: Melissa Y. Wortham-Coles
Docket Number: 28577-07S
Judge: Colvin
Opinion Type: bench
Filed: 04/10/2009
Pages: 8

UNITED STATES TAX COURT WASHINGTON , DC 2021 7 MELISSA Y . WORTHAM-COLES , Petitione r V . COMMISSIONER OF INTERNAL REVENUE , Respondent O R D E R Pursuant to Rule'152(b), Tax Court Rules of Practice and Procedure, it i s 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 of the above case before Special Trial Judge Robert N . Armen, Jr . at Los Angeles, California, on March 24, 2009, containing his oral findings of fact and opinion rendered at the conclusion of the trial . In accordance with the oral findings of fact and opinion, a Decision will be entered fordent . (Signed) Robert N . Armen, Jr. Special Trial Judg e Dated : Washington, D .C . April 10, 2009 SERVED Apr 13 2009 1 Bench Opinion by Special Trial Judge Robert N . Armen, Jr . 2 WORTHAM-COLES v . COMMISSIONER Docket No . 28577-07S 3 3 March 24, 200 9 4 I . 5 The Court has decided to render oral findings of fact 6 and opinion in this case, and the following represents the 7 Court's oral findings of fact and opinion . The ora l 8 findings of fact and opinion shall not be relied upon as 9 precedent in any other case . 10 II . 11 This proceeding was heard as a Small Tax Cas e 12 pursuant to the provisions of section 7463 of the Internal 13 Revenue Code of 1986, as amended, and Rules 170 through 175 14 of the Tax Court Rules of Practice and Procedure . 15 III . 16 This bench opinion is made pursuant to th e 17 authority granted by section 7459(b) of the Internal Revenue 18 Code of 1986, as amended, and Rule 152 of the Tax Cour t 19 Rules of Practice and Procedure . 20 Hereinafter in this bench opinion, and unless 21 otherwise indicated, all section numbers refer to the 22 Internal Revenue Code, as amended and in effect for 2005 , 23 the taxable year in issue, and all Rule numbers refer to the 24 Tax Court Rules of Practice and Procedure . 25 // Heritage Reporting Corporation (202) 628-4888 1 IV . 2 Melissa Y . Wortham-Coles appeared on her own 3 behalf . Joyce M . Marr appeared on behalf of Respondent . 4 V . 5 For the taxable year 2005, Respondent determined a 6 deficiency in Petitioner's Federal income tax in the amount 7 of $2,838 . 8 VI . 9 After a concession by Petitioner regarding th e 10 taxability of a State tax refund, the issue for decision by 11 the Court is whether the outstanding balance of Petitioner's 12 student loans that were cancelled in 2005 is properl y 13 includible in her income for that year . 14 Other adjustments to Petitioner's taxable income 15 are purely mechanical matters, the resolution of which is 16 dependent principally on our disposition of the 17 cancellation-of-indebtedness income issue . 18 VII . 19 Some of the facts have been stipulated, and they 20 are so found . 21 Petitioner resided in the State of California at 22 the time that the petition was filed with the Court . 23 On August 11, 1994, Petitioner and her father 24 Thomas Wortham signed a standard form Application & 25 Promissory Note for a student loan . In this document , Heritage Reporting Corporation (202) 628-4888 5 1 Petitioner was identified as the student and Mr . Wortham was 2 identified as the applicant . By signing the Application & 31, Promissory Note, both Petitioner and Mr . Wortham expressl y 4 agreed to be jointly and severally liable for the amount 5 borrowed, and both expressly promised, jointly an d 6 severally, to pay such amount . 7 Pursuant to the aforementioned Application & 8 Promissory Note, Petitioner received a loan disbursement in 9 September 1994 in the amount of $8,743 .98 . 10 On September 5, 1995, Petitioner and her father 11 Thomas Wortham signed a second standard form Application & 12 Promissory Note for another student loan . In this document, 13 Petitioner was again identified as the student an d 14 Mr . Wortham was identified as the applicant . By signing the 15 Application & Promissory Note, both Petitioner an d 16 Mr . Wortham agreed to be jointly and severally liable fo r 17 the amount borrowed, and both expressly promised to pay such 18 amount . 19 Pursuant to the aforementioned second Application 20 & Promissory Note, Petitioner received a loan disbursement 21 : in September 1995 in the amount of $7,949 .42 . 22 Both the 1994 loan and the 1995 loan were for the 23 purpose of permitting Petitioner to pursue her colleg e 24 education .at, and to graduate from, Pacific Lutheran 25 University in Tacoma, Washington . Heritage Reporting Corporation (202) 628-4888 6 1 Petitioner's father made payments on the 1994 loan 2 and on the 1995 loan until 2001, when he suffered a strok e 3 and became disabled and unable to make further payments . 4 Because Petitioner was then unemployed, she was unable t o 5 make payments, and the two loans went into default and were 6 referred to a collection agency . Efforts by Petitioner and 7 her father to compromise the outstanding liabilities wer e 8 unsuccessful . Ultimately, in 2005, the bank holding th e 9 promissory notes wrote off the debts and issued Forms 1099-C 10 in Petitioner's name for forgiveness of indebtedness, one in 11 the amount of $7,008 .25 and the other in the amount o f 12 $6,596 .17, for a rounded total of $13,604 . Petitioner did 13 not receive either Form 1099-C . 14 Petitioner timely filed an income tax return, Form 15 1040, for 2005 . On her return, Petitioner listed he r 16 occupation as accountant, and she reported wages of $93,780, 17 as well as a modest amount of interest income . Petitioner 18 did not report any income from cancellation of . indebtedness 19 on her return . 20 In the .notice of deficiency, Responden t 21 determined, inter alia, that Petitioner failed to report 22 income of $13,604 from the cancellation of her student 23 loans . 2 4 25 VIII . The issue for decision is essentially legal i n Heritage Reporting Corporation (202) 628-4888 7 1 nature . Accordingly, we decide it without regard to the 2 burden of proof . 3 Section 61 generally, defines gross income as "all 4 income from whatever source derived * * * ." Sectio n 5 61(a)(12) specifically provides that gross income include s 6 income from the discharge of indebtedness . See also Gitlitz 7 8 v . Commissioner , 531 U .S . 206, 213 .(2001) ; United States v . Kirby Lumber Co ., 284 U .S . 1 (1931) . Although there ar e 9 both statutory and case-law exceptions to the rule of 10 inclusion prescribed by section 61 (a) (12), see, e .g ., 11 section 108, no recognized exception has been invoked b y 12 Petitioner, and the record in this case does not suggest the 13 applicability of . any such recognized exception . 14 Rather, Petitioner contends that she was not the 15 applicant, or even the co-applicant, for either the 1994 16 loan or the 1995 loan, but merely the "student" . However, 17 the fact of the matter is that Petitioner signed eac h 18 Application & Promissory-Note, expressly agreeing to be 19 jointly and severally liable for each loan and expressly 20 promising to pay each loan . 21 In addition, Petitioner was the direct and sole 22 beneficiary of both the 1994 loan .and the 1995 loan, as the 23 proceeds of both loans were used to further her colleg e 24 education . Indeed, the Application & Promissory Note makes 25 clear that the loan proceeds were for Petitioner's college Heritage Reporting Corporatio n (202) 628-4888 1 education and for no other purpose . 2 The fact that Petitioner may have originall y 3 applied for credit in her own name but was unsuccessful and 4 therefore had to enlist her father as applicant on he r 5 behalf is of no consequence . As just discussed, Petitioner 6 signed each Application & Promissory Note, agreed to b e 7 liable, promised to pay, and was the sole beneficiary of the 8 loan proceeds . 9 Moreover, Petitioner testified at trial that her 10 father had not received any Form 1099-C from the bank or a 11 notice of deficiency from Respondent . Counsel fo r 12 Respondent confirmed that she was unaware of any deficiency 13 notice having been sent to Petitioner's father . 14 Petitioner contends that credit reporting agencies 15 do not regard her as a "co-borrower" . However, that . 16 contention is unavailing, given the undisputed fact tha t 17 Petitioner signed each Application & Promissory Note, agreed 18 to be liable, promised to pay, and was the sole beneficiary 19 of the loan proceeds . 20 Similarly unavailing is Petitioner's contentio n 21 that no Form 1099-C should have been issue in her name under 22 applicable regulations . But see sec . 1 .6051P-l(e)(1) , 23 Income Tax Regs . 24 Again, what is determinative is the fact tha t 25 Petitioner signed each Application & Promissory Note, agreed Heritage Reporting Corporatio n (202) 628-4888 1 to be liable, promised to pay, and was the sole beneficiary 2 of the loan proceeds . 3 In conclusion, we hold that Petitioner should have 4 included the amount of the cancelled student loans in he r 5 income for 2005 . Respondent's determination to that effect 9 6 is therefore sustained . 7 IX . In order to give effect to our disposition of th e 9 disputed issue, as well as Petitioner' s concession regarding 10 the State tax refund, decision will be entered fo r 11 Respondent . 12 X . 13 This concludes the Court ' s oral findings . of fact 14 and opinion in this case . 15 (Whereupon , at 8 :29 a .m ., the bench opinion in the 16 above-entitled matter was concluded . ) 17 18 19 20 21 22 23 / / 24 25 Heritage Reporting Corporation (202) 628-4888