TAX COURT OPINION

Case: Stephen Bernard Schachner, Jr. & Jill Frances Schachner
Docket Number: 23478-05S
Judge: Armen
Opinion Type: summary
Filed: 12/13/2006
Pages: 6

T .C . Summary Opinion 2006-18 8 UNITED STATES TAX COUR T STEPHEN BERNARD SCHACHNER, JR ., AND JILL FRANCES SCHACHNER, COMMISSIONER OF INTERNAL REVENUE, Responden t Petitioners v . Docket No . 23478-05S . Filed December 13, 2006 . Stephen Bernard Schachner , Jr ., and Jill Frances Schachner, pro sese . Edwina Jones , for respondent . ARMEN, Special Trial Judge : This case was heard pursuant to the provisions of section 7463 of the Internal Revenue Code in effect when the petition was filed .' The decision to be entere d 1 Unless otherwise indicated, all subsequent section references are to the Internal Revenue Code in effect for 2003, the taxable year in issue . "ma) AG 13 2A 9 - 2 - is not reviewable by any other court, and this opinion should not be cited as authority . Respondent determined a deficiency in petitioners' Federal income tax for 2003 in the amount of $1,950 . The sole issue for decision is whether petitioners should have included $7,807 of cancellation of indebtedness income on their 2003 Federal income tax return . We hold that they should have done so and therefore sustain respondent's determination . Backgroun d Some of the facts have been stipulated, and they are so found . We incorporate by reference the parties' stipulation of facts and accompanying exhibits . At the time the petition was filed, Stephen Bernard Schachner (Mr . Schachner) and Jill Frances Schachner (jointly petitioners) lived in Charlotte, North Carolina . In 1994, while Mr . Schachner was taking classes at a local community college, he borrowed $10,030 from University Support Services to purchase an Apple computer (the Apple loan) . At Mr . Schachner's request, his mother-in-law applied for the loan on his behalf, and both Mr . Schachner and his mother-in-law signed the Application & Promissory Note, agreeing to be jointly and severally liable for the loan . In 1995, petitioners filed a Chapter 13 bankruptcy petition with the United States Bankruptcy Court for the Western District - 3 - of North Carolina . A discharge was granted on April 7, 2000 . The Apple loan was not discharged as a part of the bankruptcy proceedings . 2 In 2003, approximately $7,807 of the Apple loan debt remained unpaid, and the debt was canceled by EduCap, Inc . (EduCap), the successor to University Support Services and then- current holder of the loan . EduCap mailed Mr . Schachner a Form 1099-C, Cancellation of Debt, reporting the $7,807 discharge of indebtedness .' At trial, Mr . Schachner testified that he did not receive it . Respondent's determination of a deficiency in petitioners' Federal income tax for the taxable year 2003 was solely attributable to petitioners' failure to report the cancellation of indebtedness income . 2 The Application & Promissory Note makes it clear that the Apple loan is not dischargeable in bankruptcy during the first 7 years of repayment . Additionally, the Apple loan was found to be nondischargeable pursuant to a Stipulated Order Determinin g Character and Treatment of Claim of University Support Services entered as a part of the ch . 13 bankruptcy proceedings . 3 Despite the fact that the Application & Promissory Note made Mr . Schachner and his mother-in-law jointly and severally liable for the Apple loan, neither University Support Services nor its successor, EduCap, Inc ., appears to have regarded Mr . Schachner's mother-in-law as a debtor or looked to her for repayment of the loan . This approach is consistent with the issuance of the Form 1099-C to Mr . Schachner in the full amount of the discharged debt . - 4 - Discussion ' Section 61 generally defines gross income as "all income from whatever source derived" . Section 61(a)(12) specifically provides that gross income includes income from the discharge of indebtedness . See also Gitlitz v . Commissioner , 531 U .S . 206, 213 (2001) ; United States v . Kirby Lumber Co . , 284 U .S . 1 (1931) . Section 108(a)(1) lists several exclusions from this general rule, and petitioners argue that the exclusion in section 108(a)(1)(A) applies because the "loan was discharged in [their] Chapter 13 bankruptcy 4 years ago . " Section 108(a)(1)(A) provides that gross income does not include cancellation of indebtedness income if the discharge occurs in a title 11 case . Title 11 of the United States Code contains the provisions relating to bankruptcy, including the rules related to 11 U .S .C . Chapter 13, Adjustment of Debts of an Individual with Regular Income . Yet the Apple loan was specifically not discharged--nor was it dischargeable--in the bankruptcy proceedings . The loan remained on EduCap's books until it was written off on April 30, 2003 . Section 108(a)(1)(A) does not apply . ' ' The issue for decision is essentially legal in nature ; accordingly, we decide it without regard to the burden of proof . ' The other exclusions listed in sec . 108(a)(1) are inapplicable as well : Petitioners were not insolvent at the time the debt was discharged, the debt was not qualified far m (continued . . .) - 5 - Petitioners also claim that they "are not the guarantor of the loan ." At trial, Mr . Schachner attempted to argue that since he was not the "applicant", the debt was not his . However, the simple fact remains that Mr . Schachner signed the Application & Promissory Note, promising to be held jointly and severally liable for the debt . He received the proceeds of the loan directly . Further, the sole purpose in obtaining the loan was to enable him to purchase a computer and further his education . ' Mr . Schachner's attempt to avoid responsibility and place the debt and its consequences solely with his mother-in-law is unavailing . To the extent petitioners have made other arguments, the Court concludes such arguments are without merit . As no exclusion applies and the debt was clearly Mr . Schachner's responsibility, petitioners should have included $7,807 of cancellation of indebtedness income in their gross income on their 2003 tax return . '( . . .continued) indebtedness, and the debt was not qualified real property business indebtedness . See sec . 108(a)(1)(B), (C), and (D) . 6 The Court finds it worth noting that, although he never finished his degree, Mr . Schachner has been employed with Microsoft Corp . since 1999 and earns a substantial salary, no doubt due in part to this education . - 6 - Conclusio n Reviewed and adopted as the report of the Small Tax Case Division . To reflect our disposition of the disputed issue , Decision will be entere d for respondent .