                  T.C. Summary Opinion 2009-78



                     UNITED STATES TAX COURT



               ANGELA BIBB-MERRITT, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 13208-07S.               Filed May 18, 2009.




     Angela Bibb-Merritt, pro se.

     Brooke S. Laurie, for respondent.



     PANUTHOS, Chief 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.1   Pursuant to

section 7463(b), the decision to be entered is not reviewable by


     1
       Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
                                - 2 -

any other court, and this opinion shall not be treated as

precedent for any other case.

     Respondent determined a deficiency of $4,487 in petitioner’s

2005 Federal income tax.

     The issues for decision are:   (1) Whether petitioner is

entitled to exclude from income some or all of her credit card

debt that was discharged in 2005; and (2) whether petitioner is

entitled to a deduction for payments to a debt negotiation

service.

                            Background

     Some of the facts have been stipulated, and we incorporate

the stipulation and accompanying exhibits by this reference.

Petitioner lived in California when she filed the petition.

     Petitioner worked full time as a letter carrier for the U.S.

Postal Service.   Petitioner started a business in 1996.

Petitioner purchased Afrocentric dolls, doll stands, doll

clothing, and doll jewelry to sell.     Her business failed sometime

before 2005, the year in issue.

     Petitioner accumulated over $112,000 in credit card debt.

She incurred some of the debt for the purchase of inventory and

other business expenses.   She incurred most of the debt between

1999 and 2001.

     Petitioner hired Freedom Debt Relief (FDR) to assist her in

negotiating with her creditors.   In 2005 FDR arranged for some of
                               - 3 -

petitioner’s creditors to accept reduced payments and cancel some

of petitioner’s debt.

     Petitioner timely filed her 2005 Form 1040, U.S. Individual

Income Tax Return, reporting $10,888 in discharge of indebtedness

income (sometimes hereafter referred to as DOI) and claiming two

related deductions:   (1) $10,888 representing the exclusion of

the DOI from income on the basis of insolvency and (2) $9,617 as

an amount paid to FDR to negotiate with her creditors.     The

entries for these deductions on petitioner’s Schedule A, Itemized

Deductions, include “See Statement”, but the copy of petitioner’s

return in the record does not include these statements.2

Petitioner’s 2005 return also includes a Schedule C, Profit or

Loss From Business, but this schedule reports only zeros; i.e.,

it does not report any business income or any business expenses

for 2005.

     The Internal Revenue Service (IRS) issued a notice of

deficiency disallowing both DOI-related deductions listed above.

     Petitioner filed a timely petition and testified at trial.


     2
       Upon an initial review of the record, the Court observed
that the facts relating to petitioner’s claim of insolvency were
quite limited. In an attempt to afford petitioner every
opportunity to provide a complete record on this issue, the Court
directed the parties to confer for the purpose of supplementing
the record. Petitioner was unresponsive to invitations from the
Court, her own representative, and respondent’s counsel to
present additional information. Given the Court’s extraordinary
efforts to encourage petitioner to make a complete factual record
and petitioner’s lack of response, the Court has no choice but to
consider this matter on the existing incomplete record.
                               - 4 -

                             Discussion

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

notice of deficiency is presumed correct, and the taxpayer bears

the burden of proving that the determination is in error.    Rule

142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).     Pursuant

to section 7491(a), the burden of proof as to factual matters

shifts to the Commissioner under certain circumstances.

Petitioner has neither alleged that section 7491(a) applies nor

established her compliance with its requirements.    Petitioner

therefore bears the burden of proof.

1.   Discharge of Indebtedness Exclusion

     Gross income is broadly defined and includes income from a

discharge of indebtedness.   Sec. 61(a)(12).   However, section

108(a)(1)(B) allows a taxpayer to exclude DOI from income if a

debt cancellation occurs when the taxpayer is insolvent.    A

taxpayer’s “indebtedness” is defined as debt for which the

taxpayer is liable.   Sec. 108(d)(1)(A).   The insolvency exclusion

is limited to the amount of the taxpayer’s insolvency.    Sec.

108(a)(3).   Finally, “insolvency” is defined as the excess of the

taxpayer’s liabilities over the fair market value of the

taxpayer’s assets and is determined immediately before the

discharge.   Sec. 108(d)(3); Merkel v. Commissioner, 109 T.C. 463,

472-473 (1997), affd. 192 F.3d 844 (9th Cir. 1999); Miller v. ,

Commissioner, T.C. Memo. 2006-125.
                               - 5 -

     To document her liabilities and cancellation of

indebtedness, petitioner introduced:   (1) A handwritten summary

of her credit card debts as of the end of 2005, totaling

$112,420.47; (2) an undated summary from FDR of the debt accounts

it was working,3 listing a total of $133,931.53 in debts, with

some identified as “settled” and several of those identified by

petitioner’s handwritten notes as having been settled in 2005;

and (3) copies of four e-mail messages documenting debt

forgiveness negotiated by FDR in 2005.4

     Petitioner testified that she was insolvent in 2005 when

these debts were canceled.   The Court advised petitioner that

consideration of whether she was insolvent required a review of

her assets and liabilities at the time of the discharge.

Petitioner provided some information about her debts in 2005, as

described above, but she did not introduce documentary evidence

or testimony sufficient to determine the fair market value of her

assets.

     The record does not demonstrate that petitioner was

insolvent before the debt cancellation.   Thus, petitioner failed

to prove that she was insolvent at the time the debt was




     3
       Although the document is undated, the last entry on this
summary appears to be dated August 2006.
     4
       The total discharge of indebtedness indicated by these
e-mails is $8,294.62. However, the parties do not dispute that
petitioner received $10,888 in debt cancellation in 2005.
                                - 6 -

canceled.    As a result, petitioner may not exclude the income

from discharge of indebtedness.    Sec. 108(d)(3).

2.   Payments to FDR

     Petitioner testified that FDR required her to establish a

separate bank account and to deposit funds into that account.

She explained that FDR withdrew its fees and expenses from that

account, together with payments of negotiated amounts to

petitioner’s creditors.    Petitioner did not provide a copy of an

agreement with FDR, indicate the exact nature of the claimed

payments to FDR, or introduce any evidence to support her claim

that she paid FDR $9,617 in 2005 to obtain $10,888 in debt

cancellation.5

     Petitioner failed to establish that the claimed expenditure

of $9,617 is properly deductible, nor did she establish that the

amount was actually paid.6   Respondent’s determination is

sustained.   See Higbee v. Commissioner, 116 T.C. 438 (2001).




     5
       As noted, petitioner’s 2005 Schedule A references a
statement on line 22 where she claimed the $9,617 as “Other
expenses”. However, the record does not include any statement
that itemizes or describes that deduction of those payments.
     6
       While the rule of Cohan v. Commissioner, 39 F.2d 540 (2d
Cir. 1930), permits the Court to estimate the deductible amount
of a taxpayer’s expense if she is unable to substantiate the
precise amount, we can make such an estimate only if the taxpayer
provides some reasonable evidentiary basis for estimating the
expenses. Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985).
                              - 7 -

     We have considered all arguments made, and, to the extent

not mentioned, we conclude that they are moot, irrelevant, or

without merit.

     To reflect our disposition of the issues,



                                           Decision will be entered

                                      for respondent.
