                                T.C. Memo. 2018-4



                         UNITED STATES TAX COURT



               JOHN ANTHONY GLENNON, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 27062-16.                          Filed January 16, 2018.



      John Anthony Glennon, pro se.

      David W. Sorensen, for respondent.



            MEMORANDUM FINDINGS OF FACT AND OPINION


      GERBER, Judge: Respondent determined a $2,425 income tax deficiency

for petitioner’s 2014 taxable year. The deficiency is solely attributable to

respondent’s determination that petitioner failed to include $9,686 of cancellation

of indebtedness income, which is the issue before the Court.
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[*2]                           FINDINGS OF FACT

       Petitioner resided in Nevada at the time his petition was filed. While

traveling, petitioner was approached in an airport by someone with an offer for

petitioner to purchase a Southwest Airlines ticket good for any round-trip

destination in the United States for $59. Petitioner thought it was a good deal, and

he filled out what he believed was an application for the $59 ticket. Several weeks

later, petitioner received a Southwest Airlines credit card (card) that was issued by

Chase Bank. At the time the card arrived, petitioner was experiencing financial

difficulties, and he used the card to pay living and related expenses.

       He charged approximately $12,000 and had fallen behind in payments on

the card debt. During 2014 he was contacted by the issuing bank and was offered

a deal to settle the outstanding debt by the payment of a lesser amount, which

petitioner agreed to with the expectation that he would have no further obligations

or liabilities with respect to the debt. What ultimately happened, however, was

that the bank applied the settlement amount toward interest and a portion of the

debt, leaving a balance of $9,686. The bank then canceled the debt and issued a

Form 1099-C, Cancellation of Debt, for cancellation of indebtedness income to

petitioner and to the Internal Revenue Service.
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[*3] Petitioner did not report the $9,686 on his 2014 Federal income tax return

because it was his understanding that the debt had been resolved by his settlement

with the bank. In other words, petitioner did not understand the concept of

cancellation of indebtedness income. Respondent contacted petitioner and,

ultimately, determined an income tax deficiency attributable to the unreported

cancellation of indebtedness income under section 61(a)(12)1, and petitioner filed

a timely petition with this Court.

                                     OPINION

      Section 61(a)(12) provides that gross income includes income from

cancellation of indebtedness. The relevant statutory exception to the inclusion of

income for cancellation of indebtedness applies where the recipient is insolvent at

the time of the cancellation.2 See sec. 108(a)(1)(B).

      Petitioner argues that the bank lured him into obtaining the card under the

guise of selling him a reduced-price round-trip ticket on Southwest Airlines; and

but for the fact that he was on hard financial times, he would not have incurred the

debt. Petitioner also argues that he was deceived by the bank’s offer to “settle” the


      1
      Unless otherwise indicated, all section references are to the Internal
Revenue Code in effect for the year in issue.
      2
       We note that petitioner bears the burden of proving insolvency under sec.
108(a)(1)(B). See, e.g., Shephard v. Commissioner, T.C. Memo. 2012-212.
                                        -4-

[*4] debt by payment of a lesser amount. Petitioner has not alleged or shown that

he was insolvent at the time the debt was canceled.

      Although petitioner believes that he was a victim and we agree that his

circumstances are sympathetic, as a matter of law the cancellation of debt is

taxable to him. Accordingly, respondent’s determination of a $2,425 income tax

deficiency for 2014 was not in error.

      To reflect the foregoing,


                                                      Decision will be entered for

                                              respondent.
