TAX COURT OPINION

Case: Bahman Khodarahm Abadian
Docket Number: 7184-09
Judge: Colvin
Opinion Type: bench
Filed: 10/29/2009
Pages: 8

UNITED STATES TAX COUR T WASHINGTON , DC 2021 7 BAHMAN KHODARAHM ABADIAN , Petitioner , V . Docket No . 7184-09 . 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 in the above case before Judge David Gustafson at Washington, D .C ., on October 15, 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, .decision will be entered for respondent . (Signed ) David Gustafson Judge Dated : Washington, D .C . October 29, 2009 SERVED NOV - 2 2009 44 3 1 Bench Opinion by Judge David Gustafson October 15, 200 9 2 Bahman Khodarahm Abadian v . Commissioner Docket No . 7184-09 3 The Court has decided to render oral findings o f 4 fact and opinion in this case, and the following represents 5 the Court's oral findings of fact and opinion . The ora l 6 findings of fact and opinion shall not be relied on as 7 precedent in any other case . 8 This bench opinion is made pursuant to th e 9 authority granted by Section 7459(b) of the Internal Revenue 10 Code of 1986, as amended, and Rule 152 of the Tax Cour t 11 Rules of Practice and Procedure . 12 By notice of deficiency, dated December 29, 2008, 13 the IRS determined a $3,861 deficiency in the federal income 14 tax of Bahman K . Abadian and Simin T . Abadian for the ta x 15 year 2006 . For the reasons explained hereafter, we sustain 16 the deficiency determination . 17 Mr . Abadian testified during the trial of this 18 case on October 13, 2009, in Washington, D .C . The Cour t 19 admitted into evidence the parties' Stipulation of Facts and 20 Supplemental Stipulation of Facts, with attached Exhibit s 21 1-J through 8-J, and also admitted Exhibits 9-P through 14-P 22 offered by Mr . Abadian . 23 FINDINGS OF FAC T 24 Mr . Abadian resided in Virginia when he filed the 25 petition in this suit . [Stip . 4 .1 Simin Abadian did not Heritage Reporting Corporatio n (202) 628-4888 4 1 sign the petition or appear at trial, and she is, therefore, 2 not a party to this case . 3 Mr . Abadian had a long career at the World Ban k 4 and became entitled to a pension . In 2006, Mr . Abadian was 5 a United States citizen, and he filed a timely joint federal 6 income tax return for 2006 . He reported pension income o f 7 $28,164 and a rental property loss, but he did not report 8 any dividend income or any income from the discharge o f 9 indebtedness . [Ex . 7-J . ] 10 Mr . Abadian received distributions from th e 11 International Bank for Reconstruction and Development (IBRD) 12 Staff Retirement Plan in 2006 . The IBRD paid gros s 13 distributions of $72,216 .29 and reported that $18,045 .24 14 represented employee contributions, and the remainin g 15 $54,171 .05 was taxable pension income . [Ex . 8-J ; Stip . ¶ 16 8 . ] 17 In May of 2006, Mr . Abadian had a balance of 18 $10,004 on a Citi Visa card [Ex . 5-J], and he paid Cit i 19 $6,000 to settle this debt [Ex . 3-J] . He was thus forgiven 20 the unpaid balance of $4,004 . Also in May of 2006, Mr . 21 Abadian made a twelfth payment of $1,250 toward a separate 22 Citi Platinum card . His $15,000 in payments reduced the 23 balance on this card from $20,791 .79 to $5,791 .79, and Citi 24 accepted his payments in settlement of the debt . [Exs . 6-J, 25 4-J, pp . 2, 18 .] It thus appears that he was forgiven a n Heritage Reporting Corporation (202) 628-4888 5 1 unpaid balance of $5,791 .79, but Citi reported (and the IRS 2 accepted) the smaller amount of $3,050, and we, likewise , 3 assume that smaller amount, in Mr . Abadian's favor . 4 On December 29, 2008, the IRS issued a notice of 5 deficiency, determining the following : (i) Mr . Abadia n 6 received $12 in unreported dividend income ; (ii) he received 7 $4,004 in discharge-of-indebtedness income from the Vis a 8 card and $3,050 in discharge-of-indebtedness income from the 9 Platinum card, totaling $7,054, and (iii) he receive d 10 $54,171 in taxable pension income but reported only $28,164 11 [Ex . 2-J, pp . 7-8 .1 The IRS determined a deficiency o f 12 $3,861 in Mr . Abadian's 2006 federal income tax . Mr . 13 Abadian timely filed his petition in this Court on March 23, 14 2009 . 15 Mr . Abadian has conceded that he received $12 of 16 taxable dividends in 2006 . [Supp . Stip .,j 17 . 1 17 Therefore, the issues remaining for decision are 18 whether, in 2006, Mr . Abadian received $7,054 in taxable 19 discharge-of-indebtedness income and $54,171 in taxabl e 20 pension income . 21 OPINION 22 I . Burden of Proof . In general, th e 23 Commissioner's determination set forth in a notice o f 24 deficiency is presumed correct, and the taxpayer bears the 25 burden of proving that the determination is in error . Rule Heritage Reporting Corporatio n (202) 628-4888 6 142(a) ; Welch v . Helvering , 290 U .S . 111, 115 (1933) . Th e taxpayer bears the burden of showing his entitlement to an y deductions or exclusions from income . INDOPCO, Inc . v . Commissioner , 503 U .S . 79, 84 (1992) . II . Forgiveness of Indebtedness . Mr . Abadia n asserts that he incurred an economic loss when he repaid hi s debt to Citi early . Apparently, his notion is that, becaus e he paid the debt earlier than he was required to, h e forewent the opportunity to earn a greater return on th e money than the rate of interest he had been paying Citi . He argues that, because of this loss, he should not be taxed o n any discount he received from Citi . Whatever Mr . Abadian' s theory for evaluating the economics of the situation, th e tax effects of the transaction are clear : Generally, a taxpayer must recognize income fro m the discharge of indebtedness . Sec . 61(a)(12) ; Unite d States v . Kirby Lumber Co . , 284 U .S . 1 (1931) . When a taxpayer settles an undisputed debt for less than the amoun t 1 2 3 4 5 7 8 9 10 11 12 13 14 15 16 17 18 19, owed, the difference between the amount owed and the amoun t 20 21 22 23 24 25 paid is the amount of debt discharged . Cronin v . Commissioner , T .C . Memo . 1999-22 . Section 108(a)(1 ) enumerates specific exceptions which permit the exclusio n from gross income of some or all of the amount discharged . These exclusions include, for example, discharges that occu r during bankruptcy or while a taxpayer is insolvent . Heritage Reporting Corporation (202) 628-4888 7 1 Mr . Abadian asserts that he should not be liable 2 for discharge-of-indebtedness income because hi s 3 calculations show that he suffered an economic loss b y 4 repaying Citi earlier than required . However, this is not S one of the exceptions provided by the Internal Revenue Code . 6 The record shows that Citi cancelled some of Mr . Abadian's 7 debt, and there is no dispute that the amount Citi reported, 8 and the IRS determined, is $7,054 . Mr . Abadian has no t 9 demonstrated that he is entitled to exclude any of this 10 amount from gross income . 11 III . Pension Income . Mr . Abadian contends that 12 only part of his IBRD pension should be taxable in th e 13, United States because (1) he earned the pension while 14 working for the World Bank and living abroad ; (2) because he 15 lives half of each year in Iran, and banking restriction s 16 prevent him from . accessing his pension while in Iran ; and 17 (3) because he has lost investments, property, and money in 18 Iran since the revolution in 1979 . None of these facts , 19 however, entitles him to avoid tax on his pension . 20 Mr . Abadian was a citizen of the United States in 21 2006, and U .S . citizens are taxable on their entire 22 worldwide income . Sec . 61(a) ; Cook v . Tait , 265 U .S . 47, 56 23 (1924) . Certain credits and exclusions are available . For 24 example, Section 901(a) and (b) allow credits against U .S . 25 income tax for taxes paid to a foreign country during th e Heritage Reporting Corporation (202) 628-4888 8 1 taxable year . In addition, Section 911(a)(1) provides an 2 exclusion for foreign earned income . However, Mr . Abadian 3 ; neither claimed nor proved that he paid any tax to an y 4 foreign country in 2006, and Section 911(b)(1)(B)(i ) 5 specifically provides that amounts received as a pension are 6 not considered foreign earned income (and thus may not b e 7 excluded under Section 911(a)(1)) . There is no dispute that 8 the IBRD properly credited Mr . Abadian for the portion o f 9 his 2006 pension distribution which represents nontaxabl e 10 employee contribution ; and Mr . Abadian has not shown that he 11 is entitled to exclude any of the remaining $54,171 that 12 IBRD reported as taxable and that the IRS determined is 13 taxable income . 14 Mr . Abadian asserts that some World Bank 15 pensioners escape U .S . tax liability because of treaties 16, between their home countries and the U .S . He observes that 17 it is not his fault that the U .S . and Iran have no 18 equivalent treaty, and he asks the Court to grant him the 19 benefit that other World Bank pensioners receive . Assuming 20 that Mr . Abadian is right about these other pensioners, the 21 Tax Court has no power to impose its own equitable judgments 22 in the absence of a treaty that would legitimately yiel d 23 those effects . Article II, Section 2, of the U .S . 24' Constitution gives the treaty power to the President, with 25 the advice and consent of the Senate . We have no authority Heritage Reporting Corporatio n (202) 628-4888 9 1 to contrive treaty effects where there is no treaty . 2 Mr . Abadian received income from the discharge of 3 indebtedness and pension income as determined in the notice 4 of deficiency, both of which are taxable income, and w e 5 sustain the IRS's determination . 6 Decision will be entered, in favor of Respondent, 7 sustaining the $3,861 deficiency . 8 This concludes the Court's oral findings of fact 9 and opinion in this case . 10 (Whereupon, at 9 :15 a .m ., the bench opinion in the 11 above-entitled matter was concluded . ) 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Heritage Reporting Corporation (202) 628-4888