TAX COURT OPINION

Case: Ronald Curtiss Grumbkow
Docket Number: 2984-14
Judge: Gustafson
Opinion Type: bench
Filed: 03/20/2015
Pages: 7

UNITED STATES TAX COURT WASHINGTON, DC 20217 RONALD CURTISS GRUMBKOW, Petitioner, v. PA ) ) ) ) Docket No. 2984-14. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ORDER Pursuant to the opinion of the Court as set forth in the pages of the transcript of the proceedings at Washington, D.C., on March 6, 2015, 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 undersigned judge at Washington, D.C., containing his oral findings of fact and opinion rendered at the trial session at which the case was heard. In accordance with the oral findings of fact and opinion, decision will be entered under Rule 155. (Signed) David Gustafson Judge Dated: Washington, D.C. March 20, 2015 SERVED Mar 20 2015 Capital Reporting Company 3 1 2 P R O C E E D I N G S Bench Opinion by Judge David Gustafson 3 March 6, 2015 4 5 6 7 8 9 10 11 12 13 14 15 16 Ronald Curtis Grumbkow v. Commissioner Docket No. 2984-14 THE COURT: The Court has decided to render the following as its oral Findings of Fact and Opinion in this case. This Bench Opinion is made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code (2.6 U.S.C.), añd Tax Court Rule 152; and it shall not be relied on as precedent in any other case. By a notice of deficiency dated November 18, 2013 (Ex. 2-J), the Internal Revenue Service ("IRS") determined a deficiency in the Federal income tax of petitioner Ronald Curtiss Grumbkow for the year 2011. 17 After concession of one issue by Mr. Grumbkow, the 18 remaining issue for us to decide is whether he reCeived discharge-of-indebtedness income that he failed to report. For the reasons explained below, 21 22 23 24 25 we hold that he did not. Trial of this case was conducted on March 2, 2015, in Washington, D.C. Mr. Grumbkow represented himself; and respondent, the Commissioner of the IRS, was represented by William Gregg. FINDINGS OF FACT 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 Alleged Amoco credit card debt 2 3 4 5 6 In the 1990s Mr. Grumbkow had an Amoco credit card which he used to pay for gasoline and other auto expenses. He apparently made his latest payment on that card on August 8, 1999. Supposedly there remained an unpaid balance on the card totaling $.1,780. It seems that Amoco assigned the debt to an 8 entity called "A.F.S." on April 27, 2001. A.F.S. may have gone into bankruptcy, because Portfolio Recovery 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Associates ("PRA") apparently acquired Mr. Grumbkow's alleged debt on March 16, 2006, when PRA "purchased bankruptcy account". It appears that PRA first attempted to contact Mr. Grumbkow by telephone on December 13, 2006--i.e., more than seven years after his last payment. Thereafter it allegedly attempted repeatedly to reach Mr. Grumbkow by telephone. The foregoing facts--if they are facts--are derived from a document (Ex. 6-R) provided by PRA to the Commissioner and offered into evidence at trial by the Commissioner without any explanation by any individual, other than a written authentication pursuant to Federal Rule of Evidence 902(11). 2011 income and tax return In 2011 Mr. Grumbkow received wages of $20,631 from Wal-Mart and received Social Security benefits in the amount of $28,980. He timely filed his 2011 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company . 1 2 3 tax return in April 2012. (Ex. 1-J.) On that return, Mr. Grumbkow reported the Wal-Mart wages as income but did not report any portion of the Social 4 Security benefits, nor did he report any discharge of 5 5 6 7 8 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 indebtedness. Information returns On February 23, 2011, the IRS had received from PRA a Form 1099-C (see Ex. 2, p. 3), reporting discharge-of-indebtedness income to Mr. Grumbkow in the amount of $1,780. (The form did not mention Amoco or A.F.S.) Mr. Grumbkow did not receive any copy of the Form 1099-C. From the Social Security Administration, the IRS received a Form 1099-SSA giving notice of the Social Security benefits that had been paid to Mr. Grumbkow. The IRS compared that information to Mr. Grumbkow's tax return, and determined (correctly) that he had not reported the Social Security benefits nor any discharge of indebtedness income. Tax Court proceedings On November 18, 2013, the IRS issued its notice of deficiency for 2011 (Ex. 2-J), determining the deficiency of tax resulting from the unreported income. Mr. Grumbkow timely mailed his petition to this Court on February 13, 2014. At that time he resided in North Carolina. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 At trial Mr. Grumbkow conceded the taxability of a portion of the Social Security benefits. He had not reported any of the benefits as income, because he thought they were not taxable. Upon learning otherwise, he assented. As for the discharge-of-indebtedness income, Mr. Grumbkow had learned from the IRS in the weeks before trial, for the first time, about the alleged Amoco debt from the 1990s. At trial Mr. Grumbkow testified very convincingly that he did not know whether he had an unpaid balance due to Amoco from the 1990s, had not received phone calls from PRA, and did not know what PRA is. I. Burden of proof OPINION As a general rule, the IRS's determination is presumed correct, and the taxpayer bears the burden to prove any adjustment to the income the IRS determined. See Rule 142(a). In the case of the supposed discharge of Amoco credit card debt, however, the IRS relied on a Form 1099-C submitted by a third party to attribute income to Mr. Grumbkow. The IRS may indeed rely on information returns (Forms 1 2 3 4 5 8 9 10 11 12 13 14 15 16 17 20 21 22 23 W-2 and 1099) from third-party payors when 24 determining a taxpayer's tax liability. See, e.g., 25 Cabirac v. Commissioner, 120 T.C. 163, 167 (2003). 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 2 3 But if "[i]n any court proceeding ... a taxpayer asserts a reasonable dispute with respect to any item of income reported on an information return filed 4 with the Secretary ... and the taxpayer has fully 5 6 8 10 11 12 13 14 15 16 17 cooperated with the Secretary ..., the Secretary shall have the burden of producing reasonable and probative information concerning the deficiency in addition to such information return." Sec. 6201(d). II. Discharge-of-indebtedness income Section 61(a)(12) provides that gross income includes "[i]ncome from discharge of indebtedness." Section 108 provides circumstances in which the discharge of indebtedness is not included in income, and those circumstances include the insolvency of the debtor. See sec. 108(a)(1)(B). For purposes of the creditor's obligation to file a Form 1099, 26 C.F.R. sec. 1.6050P-1(b) (2) (i) (H) and (b) (2) (iv) provide that the events triggering a discharge of indebtedness include in some circumstances the 19 passage of a period of 36 months (i.e., three years) 20 without any payment by the debtor. 21 22 23 24 25 III. Discussion we hold that Mr. Grumbkow has asserted a reasonable dispute as to the alleged discharge-of- indebtedness income reported on the Form 1099-C from PRA. The Commissioner was unable to proffer any 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 2 "reasonable and probative information" to show the debt or its discharge. Consequently, on this issue 3 Mr. Grumbkow prevails because the Commissioner could 4 5 not carry his burden of production. We therefore need not address the issue of Mr. 6 Grumbkow's apparent insolvency in 2011 (which would negate discharge-of-indebtedness income; see sec. 8 108(a)(1)(B)), nor the question whether any discharge took place not in 2011 but years earlier, pursuant to the section 6050P regulations, nor the question whether the statute of limitations would have rendered the alleged 1999 debt uncollectible long before 2011 in any event. So that Mr. Grumbkow's 2011 tax liability can be recalculated to reflect the determination that he did not receive discharge-of-indebtedness income, and to re-calculate the taxable portion of his Social Security benefits, decision will be entered pursuant to Rule 155. This concludes the Court's oral Findings of Fact and Opinion in this case. (Whereupon, at 12:30 p.m., the above- entitled matter was concluded.) 10 11 12 13 14 15 16 17 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com