                        T.C. Memo. 2009-101



                      UNITED STATES TAX COURT



     LAWRENCE EVERETTE HILL AND JESSIE HILL, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 12118-07.                Filed May 18, 2009.



     Lawrence Everette Hill and Jessie Hill, pro se.

     Noelle C. White, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     GOEKE, Judge:   Respondent determined a deficiency of $456 in

petitioners’1 2004 Federal income tax.   The issue for decision is

whether petitioner must recognize cancellation of indebtedness



     1
      Ms. Hill is a party to this action because she filed a
joint return for the year at issue with Mr. Hill. References to
petitioner are to Mr. Hill.
                                 - 2 -

(COI) income under section 61(a)(12)2 of $4,156.   For the reasons

stated herein, we find that petitioner must recognize the COI

income.

                          FINDINGS OF FACT

     Petitioner resided in Maryland at the time of filing the

petition.

     On December 4, 1987, petitioner applied for and received a

credit card from Provident Bank (Provident).    Petitioner used the

credit card but did not make the required payments.    On March 27,

1991, Provident obtained a judgment of $1,840 plus interest

against petitioner in Maryland State court.

     Petitioner filed for bankruptcy shortly thereafter.    On

October 28, 1991, the U.S. Bankruptcy Court for the District of

Maryland issued an order confirming petitioner’s installment

plan.    The installment plan required petitioner to make payments

of $175 a month for 60 months.    Petitioner did not make the

required payments, and on July 22, 1996, an order was issued

dismissing petitioner’s bankruptcy case for material default.

     Provident maintained records of petitioner’s debt and sent

annual letters informing petitioner of his account balance.      In

2004 Provident forgave petitioner’s debt.    Provident issued a

Form 1099-C, Cancellation of Debt, to petitioner which reported


     2
      Unless otherwise indicated, all section references are to
the Internal Revenue Code, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
                                - 3 -

$4,156 in income due to cancellation of debt in 2004.    Petitioner

filed a joint Form 1040, U.S. Individual Income Tax Return, for

2004 but did not include the $4,156 in gross income.

     On February 20, 2007, respondent issued a notice of

deficiency (the notice) to petitioner for 2004.    Respondent

determined in the notice that petitioner was required to include

$13 of dividend income and $4,156 of COI in gross income.    On May

29, 2007, petitioner timely petitioned this Court for a

redetermination of his tax liability.    Petitioner concedes the

receipt of $13 of dividend income that was not included in gross

income.

                               OPINION

     In general, the Commissioner’s determination as set forth in

a notice of deficiency is presumed correct, and the burden of

proof is on the taxpayer to prove otherwise.    Rule 142(a)(1);

Welch v. Helvering, 290 U.S. 111, 115 (1933).     However, under

certain circumstances the burden shifts where a taxpayer

introduces credible evidence with respect to any factual issue

relevant to ascertaining the income tax liability of the

taxpayer.   Sec. 7491(a)(1).   Petitioner does not claim that the

burden of proof shifts to respondent under section 7491(a).     In

any event, petitioner has failed to establish that he has

satisfied the requirements of section 7491(a)(1) and (2).
                               - 4 -

Accordingly, the burden of proof does not shift to respondent

under section 7491(a).

     Section 6201(d) provides that in any court proceeding, if a

taxpayer asserts a reasonable dispute with respect to any item of

income reported on an information return such as a Form 1099

filed by a third party and the taxpayer has fully cooperated with

the Internal Revenue Service, the Commissioner has the burden of

producing reasonable and probative information concerning the

deficiency in addition to information on the return itself.

     Petitioner disputes the information on the Form 1099-C

Provident issued and argues that his debt was discharged in

bankruptcy.   However, the record shows that petitioner’s

bankruptcy case was dismissed because he did not meet the

obligations of the bankruptcy plan.    Petitioner has not asserted

a reasonable dispute with respect to the COI income on the Form

1099-C.   Accordingly, section 6201(d) does not shift the burden

to respondent.

     Generally, a taxpayer must include income from the discharge

of indebtedness.   Sec. 61(a)(12); sec. 1.61-12(a), Income Tax

Regs.   Caselaw indicates that where indebtedness from a credit

card account is being discharged, the amount of income as a

result of the discharge equals the difference between the amount

due on the obligation and the amount paid for the discharge, or

if no consideration is paid for the discharge, then the entire
                                 - 5 -

amount of the debt is considered the amount of income that the

debtor must include in income.    See, e.g., Cronin v.

Commissioner, T.C. Memo. 1999-22.

     There are exceptions to this general rule.    Section 108(a)

provides in relevant part that a taxpayer may exclude income from

the discharge of indebtedness if the discharge occurs in a

bankruptcy case or when the taxpayer is insolvent.

     Petitioner has not shown that he qualifies for any of the

exceptions in section 108(a).    Petitioner does not dispute the

amount of his debt to Provident or the amount of interest accrued

thereon, only that it was dealt with in his bankruptcy case.     As

discussed above, petitioner’s debt to Provident was not

discharged in bankruptcy.   Petitioner defaulted on his payment

plan, his bankruptcy case was dismissed, and his original debts

were restored.

     Section 108(a)(1)(B) provides that gross income does not

include any amount which would be includable in income because of

the discharge of indebtedness if the discharge occurs when the

taxpayer is insolvent.   Section 108(d)(3) provides that a

taxpayer is insolvent if his liabilities exceed the fair market

value of his assets.   See Tabrezi v. Commissioner, T.C. Memo.

2006-61; Bressi v. Commissioner, T.C. Memo. 1991-651, affd.

without published opinion 989 F.2d 486 (3d Cir. 1993).
                               - 6 -

     Petitioner has not shown that he was insolvent in 2004 when

Provident forgave his debt.   Petitioner did not produce any

evidence showing that his liabilities exceeded the fair market

value of his assets and has failed to meet his burden of proving

his insolvency at the time his debt was forgiven.

     Because Provident forgave petitioner’s debt and because

petitioner has not shown that he qualifies for any of the

exceptions in section 108(a), petitioner is required to include

the COI income in gross income.

     Accordingly,


                                            Decision will be entered

                                       for respondent.
