                         T.C. Memo. 2009-199



                       UNITED STATES TAX COURT



            ROBERT F. AND JOY MELVIN, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 20683-07.             Filed September 8, 2009.



     Steven D. Morford, for petitioners.

     Heidi I. Hansen, for respondent.



                         MEMORANDUM OPINION


     HALPERN, Judge:    By notice of deficiency (the notice),

respondent determined a deficiency of $3,135 in petitioners’

Federal income tax for 2005.   In that year, petitioners settled a

credit card debt.   After concessions, the issues for decision are

whether petitioners had $8,768 of discharge of indebtedness

income arising from that settlement and whether they may deduct
                                 - 2 -

the $2,126 fee they paid to the agency that negotiated that

settlement.1    We find that petitioners had $8,768 of discharge of

indebtedness income and that they may not deduct the fee.

     Unless otherwise stated, section references are to the

Internal Revenue Code in effect for 2005 and Rule references are

to the Tax Court Rules of Practice and Procedure.

     Some facts are stipulated and are so found.     The stipulation

of facts, with accompanying exhibits, is incorporated herein by

this reference.    All exhibits in the record are joint exhibits

and, although this case did go to trial, neither side presented

witnesses.

     We round all dollar amounts to the nearest dollar.

                              Background

     At the time they filed the petition, petitioners resided in

Arizona.     Petitioners are husband and wife.

     Robert F. Melvin (petitioner) had a credit card account with

Chase Manhattan Bank USA, NA (Chase).      In May 2005, Arbitronix,

Inc. (Arbitronix), negotiated a settlement with Chase on behalf

of petitioner, whereby Chase agreed to accept $4,579 in full




     1
      Contrary to their argument in the petition, petitioners
concede they are not entitled to any interest deduction with
respect to the discharge of indebtedness income. Petitioners
also concede they failed to report $2 in taxable dividends.
                               - 3 -

satisfaction of petitioner’s balance of $13,084.2     Arbitronix

charged petitioner a fee of 25 percent of the $8,505 savings, or

$2,126.3   Chase issued petitioner Form 1099-C, Cancellation of

Debt, which stated $8,768 as the amount of debt canceled.

     In June 2007, respondent timely issued the notice.     In

September 2007, petitioners amended their 2005 Federal income tax

return to include $8,768 of discharge of indebtedness income.

     At trial, petitioners conceded that they had $8,768 of

discharge of indebtedness income.     At that time, they moved to

amend their pleadings to include the claim that they should be

able to deduct the fee paid to Arbitronix.    Respondent did not

object, and we granted the motion.4    See Rule 41.




     2
      On brief, petitioners refer to the settlement as $2,000.
The reason is unclear.
     3
      Those figures suggest that petitioner had discharge of
indebtedness income of no more than $8,505. Nevertheless,
petitioners do not contest respondent’s figure--indeed, at trial,
petitioners conceded it. See infra. We therefore do not address
the discrepancy.
     4
      Petitioners also moved to amend their pleadings to include
the claim that they were entitled to deduct a charitable
contribution not previously deducted on their 2005 Federal income
tax return. Respondent’s counsel objected on the ground that she
thought petitioners had dropped the issue. We denied
petitioners’ motion on the ground that granting it would be
prejudicial to respondent.
                                 - 4 -

                             Discussion

I.   Petitioners’ Argument

      On brief, petitioners state:    “The issuance of a Form 1099-C

by * * * Chase * * * in the amount of $8,768 is * * * dispositive

of [neither] the existence of, nor the amount of, cancellation of

indebtedness income as described in IRC §61(a)(12).”     Petitioners

argue that “this is a case of a disputed debt or contested

liability.”   Petitioners claim that because “some charges * * *

were erroneous” and the “interest, fees and penalties were

invalid”, they hired Arbitronix to be their agent and to contest

the sum Chase alleged they owed.     Petitioners argue that the

settlement is the “amount of debt to be recognized for tax

purposes” and that the “excess of the original (disputed) debt

over * * * [the settlement] should be disregarded for both

accounting and tax purposes.”    Because Chase accepted the

settlement “as full satisfaction of the disputed debt”,

petitioners conclude that there should be “no tax consequence to

the Petitioners upon payment.”

      On brief, petitioners also argue that, if we find that

petitioners had discharge of indebtedness income, they should be

permitted to deduct the fee paid to Arbitronix.    Petitioners

concede, however, that they are not entitled to deduct the fee

under section 162 or 212.    Instead, they argue that “part and

parcel of the ‘income’ assessed through I.R.C. §61(a)(12) is the
                                - 5 -

reduction or offset of the amount so calculated due to amounts *

* * [that] do not provide a benefit”.

II.    Respondent’s Argument

       First, respondent observes that petitioners amended their

2005 Federal income tax return to include $8,768 of discharge of

indebtedness income and that petitioners conceded at trial that

in 2005 they had $8,768 of discharge of indebtedness income.

Respondent argues that petitioners are bound by their concession

and may not contest the discharge of indebtedness income.

       Second, respondent argues that, even if petitioners did not

concede that they received discharge of indebtedness income,

petitioners have failed to satisfy their burden of proving that

they disputed the underlying liability and that they did not have

$8,768 of discharge of indebtedness income.

       Third, respondent denies that petitioners are entitled to

any deduction with respect to the fee paid to Arbitronix, arguing

that petitioners have failed to satisfy their burden of proof.

III.    Analysis

       Respondent argues that petitioners are precluded from

denying that they had discharge of indebtedness income because

they conceded the issue.    We agree with respondent.   See Church

of Scientology v. Commissioner, 83 T.C. 381, 524 (1984) (“[A]

concession in open court * * * [is] the equivalent of a

stipulation.”), affd. 823 F.2d 1310 (9th Cir. 1987).
                               - 6 -

Nonetheless, we address petitioners’ argument and find that

petitioners have failed to introduce credible evidence that they

disputed the debt.

     Petitioners bear the burden of proof.   See Rule 142(a).5

Petitioners argue that, through Arbitronix, petitioner contested

his debt to Chase.   The mere fact that Chase settled for less

than the full amount of petitioner’s debt, however, is

insufficient to establish that the debt was disputed.    See, e.g.,

Rood v. Commissioner, T.C. Memo. 1996-248, affd. without

published opinion 122 F.3d 1078 (11th Cir. 1997).   At trial,

petitioners neither testified nor called witnesses to testify.

Thus, the evidence in this case consists of only the stipulated

exhibits.   Petitioners do not specify which exhibits support

their position.   The only exhibits that could support their

position are the Arbitronix invoice, the letter from Chase

confirming the settlement, and the credit card statements, and we

find that none does.   The Arbitronix invoice describes the debt

forgiven as “savings” and the letter from Chase confirming the

settlement states that if Chase did not receive the $4,579

payment before a certain date, then the “offer” would no longer

be “valid”.   Neither the invoice nor the letter in any way



     5
      Because, among other things, petitioners have failed to
introduce credible evidence that they disputed the debt, the
burden of proof does not shift to respondent under sec. 7491(a).
See sec. 7491(a)(1).
                               - 7 -

indicates the debt was disputed.   Moreover, the credit card

statements reflect substantial purchases and cash advances and

clearly illustrate how petitioners accrued the debt to Chase.

Petitioners have not suggested which charges were “erroneous” and

have not explained which interest, fees, and penalties were

“invalid”.   Petitioners have failed to satisfy their burden of

proving that there was a dispute as to either the amount or the

enforceability of their debt to Chase.    For that reason, we find

that petitioners have $8,768 of discharge of indebtedness income

for 2005.

     We also agree with respondent that petitioners may not

deduct the fee paid to Arbitronix.     Unless specifically excluded

by a provision of the Internal Revenue Code, all income is

subject to tax.   See, e.g., Commissioner v. Glenshaw Glass Co.,

348 U.S. 426, 430 (1955).   Moreover, petitioners must show the

specific authority for any deduction they claim.    See, e.g., New

Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934)

(“Obviously, therefore, a taxpayer seeking a deduction must be

able to point to an applicable statute and show that he comes

within its terms.”).   Petitioners concede they are not entitled

to deduct the fee under section 162 or 212.6    Petitioners assert


     6
      Petitioners disclaim any deduction under sec. 162 because
they had no trade or business in 2005; they disclaim any
deduction under sec. 212 because they cannot claim miscellaneous
itemized deductions when calculating their alternative minimum
                                                   (continued...)
                                - 8 -

that the authority for their deduction is section 61(a)(12)

itself; that is, the section that requires them to include

discharge of indebtedness income in gross income.         Petitioners

suggest that they received no monetary benefit from the

cancellation of the debt and for that reason argue that they

should be allowed to offset their “‘phantom’ income” with the

“loss” they suffered when they paid the fee.7      We cannot agree

with petitioners.    Section 61(a)(12) manifestly does not provide

for any kind of deduction.    Petitioners have failed to satisfy

their burden of proof, and we deny them any deduction for the

fee.

IV.    Conclusion

       Petitioners have $8,768 in discharge of indebtedness income

for 2005.    They may not deduct the fee paid to Arbitronix.


                                             Decision will be entered

                                        for respondent.


       6
      (...continued)
tax. See secs. 56(b)(1), 67. Petitioners acknowledge that, on
account of the alternative minimum tax, a miscellaneous itemized
deduction will not decrease their tax liability.
       7
      Notwithstanding petitioners’ insinuation that the income
sec. 61(a)(12) causes them to recognize is the result of some
mere accounting trick, petitioners surely did receive a monetary
benefit as a result of the cancellation of indebtedness. The
credit card statements provide prima facie evidence of the
benefits petitioners received. To be clear: Petitioners
received goods and services (and cash advances) on credit; when
Chase relieved them of their corresponding obligation to pay,
petitioners without question received an “accession to income”.
See United States v. Kirby Lumber Co., 284 U.S. 1, 3 (1931).
