TAX COURT OPINION

Case: Michael J. Brock
Docket Number: 24364-08S
Judge: Colvin
Opinion Type: bench
Filed: 11/06/2009
Pages: 6

UNITED STATES TAX COURT WASHINGTON, D.C. 2021 7 MICHAEL J . BROCK, Petitioner , v . ) Docket No . 24364-08S COMMISSIONER OF INTERNAL REVENUE, 1 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 to petitioner and to respondent a copy of the pages of the transcript of the proceedings of the above case before Judge Diane L . Kroupa at Los Angeles, California, on October 21, 2009, .containing her oral findings of fact and opinion . In accordance with the oral findings of fact and opinion, decision will be entered for respondent . except for petitioner regarding the accuracy-related penalty for 2006 . (Signed) Diane L . Kroupa Judge Date : Washington, D .C . November 6, 2009 SERVED NOV 10 2009 1 Bench Opinion by Judge Diane L .'Kroupa 2 October 21, 200 9 Michael J . Brock Docket No . 24364-08 S THE COURT : THE COURT HAS DECIDED TO RENDE R ORAL FINDINGS OF FACT AND OPINION IN THIS CASE AND TH E FOLLOWING REPRESENTS THE COURT'S ORAL FINDINGS OF FAC T AND OPINION . THESE ORAL FINDINGS OF FACT AND OPINION SHALL NOT_BE .RELIED UPON AS PRECEDENT IN ANY OTHER CASE . 10 This proceeding was-heard as a small tax cas e 11 pursuant to the provisions . of section 7463 and Rule s 12 170 through 17.5 . All section references are to the 13 Internal Revenue Code for the year 2006, which year 14 shall be referred to as the year at issue, and al l 15 Rule reference's are to the Tax,Court Rules of Practice 16 and Procedure. This bench opinion is made pursuant t o 17 the authority granted by-section 7459(b) and Rule 152 . 18 Michael Brock appearedpro be, and Nicole 19 Lloyd appeared on behalf of ' respondent . 20 FINDINGS OF FAC T 21 Certain facts have been stipulated . The 22 stipulation of facts, with accompanying exhibits, is 23 incorporated by this reference . The facts are s o 24 found . 25 Petitioner filed a return for 2006 . Heritage Reporting Corporatio n (202) 628-4888 4 1 reported $24,239 of capital gain income on Schedule D 2 that he concedes at trial is cancellation-o f 3 indebtedness income and he sought to deduct $18,722 as 4 investment interest attributable to the credit card 5 debt extinguished, which credit card debt of $110,000 6 petitioner asserts he incurred solely to purchase only 7 gold bullion and guns for investment . Petitione r started buying gold and guns approximately' 30 years ago . He purchased all the . gold and guns on credit and 10 did not pay cash for any of - the items . Petitione r 11 also apparently only used the credit cards to buy the . 12 gold and guns and did not use the credit cards for any 13 personal use . 14 Approximately ten years ago, petitioner 15 became overwhelmed . with his credit card debt and was 16 °only able to pay interest on the debt, not any 17 principal amount . In 2006, the year at issue , 18 . petitioner had recently received a $55,000 lump sum 19 payment from his employer for an elbow injury that . 20 petitioner used to settle his $110,000 outstanding 21 credit card debt . 22 Petitioner contacted a return preparer who 23 advised him to report the $24,239 reported on al l 24 .1099s he received to reflect the amount of deb t 25 canceled . As stated previously, petitioner reporte d Heritage Reporting Corporation (202) 628-4888 5 the $24,239 canceled debt amount on Schedule D as capital gains, not as ordinary income ., In addition, his return preparer advised him to deduct $18,722 of the canceled debt amount as investment interest . This leaves only $5,517 of the canceled credit card debt attributable to gold and guns. Respondent issued a statutory deficiency notice to petitioner that was later revised to determine a $5,236 deficiency in petitioner's Federa l 10- income tax and a $1,047 . 2 0 accuracy-related penalty 11 under section 6662 .' Petitioner timely filed a 12 petition to contest the deficiency determinations . 13 At the time°he filed the petition, 14 petitioner resided in California . 15 OPINION 16 This case involves the deductibility o f 17 interest attributable to cancellation - of indebtedness 18 income that simply does not add up to petitioner' s 19 position . 20 Income from the discharge of indebtedness is 21 included within the broad definition . of income . Sec . 22 61(a)(12) . The underlying rationale for inclusion i s 23 that the taxpayer .realizes an accession to income by °24 being released from a liability due to the freeing up 25 of assets previously burdened with the liability . Heritage Reporting Corporation (202) 628-4888 6 1 Jelle v . Commiss.ioner , .116T .C . 63, 67 (2001) . Debt 2 discharge generally produces income equal to th e 3 difference between the amount due on the obligatio n and the amount paid for the discharge . Sec . 61(a)(12) . Petitioner asserts that he paid a total of $55,000 of the approximate $110,000 outstanding credit card debt to settle the credit card debt in 2006 . Petitioner failed to .prove how much of the- 9 $55,000 paid was attributable to principal and ho w 10 much was attributable to interest . Petitioner want s 11 the Court to believe that all the amount of the credit 12 card debt was attributable to-acquiring gold and guns 13 so that the credit : card debt qualifies as a n 14 investment .and the interest would therefore b e 15 deductible to the extent of investment income for the, 16 . year .. Secs . 212, 163(d) . In contrast, petitione r 17 also wants the Court to believe that the only amounts 18 petitioner had been-able to pay in the past was the 19 interest component, not any principal . Petitione r 20 . can't have it-both" ways . 21 We find that petitioner has failed to prove .22 how much of the amount . paid was attributable to th e 23 interest . Petitioner also failed to prove that he ha d 24 $18,722 of net investment income in 2006 to offset 25 against the investment interest he claimed . We als o Heritage Reporting Corporation (202) 628-4888 7 find it incredible that petitioner only used th e credit cards .to purchase the alleged "investment" property and never used the credit cards for personal, nondeductible purposes . Petitioner would also have us find that only $5,000 of the $110, .000 outstanding credit card debt was attributable to gold and guns . We can't get the math to add up . The record does not help us nor does it help, petitioner . We do find, however,' that petitioner is not liable for th e 10- . accuracy related penalty for 2006 . 11 .12 13 14 15 16 17 18 1 9 2 0 21 2 2 2 3 2 4 25 To reflectthe .foregoing, decision will be entered for respondent for the reduced deficienc y amountof $5,236 except for petitioner regarding the penalty for 2006 . THIS CONCLUDES THE COURT'S ORAL FINDINGS O F FACT AND OPINION IN THIS CASE . (Whereupon., at 9 :29 a .m ., the bench opinio n in the above-entitled matter was concluded . ) . // Heritage Reporting Corporation (202) 628-4888