Semaria Consulting

Certified Fraud Examiner, Forensic Accountant & Former IRS Agent

Call: 718-531-1105
DrFraud.com   |   IRSAudit.com
  • Home
  • About Us
    • About Ron Semaria
    • Awards & Citations
    • Volunteer Work
    • Contact Information
  • Services
  • Affiliations
  • Press Releases
  • News Articles
    • News Articles
    • Tax Q&A
    • News Article Index
  • Call: 718-531-1105
  • LinkedIn

Cancellation of Credit Card Debt Is Taxable As Ordinary Income

Cancellation of Credit Card Debt Results in Cancellation of Indebtedness Of Income And Is Taxable As Ordinary Income

Credit Card DebtA taxpayer had a Mastercard and a Visa. The Visa account balance was transferred to his Mastercard account in April, 1996. The taxpayer sent a check for $1,000, a copy of his May, 1996 statement, and a request to verify that his balance was $29,837.91. Also, in 1996, he obtained a $1,200 cash advance against his Mastercard.

Between July 1996 and September 1997, he made payments totaling $4,250. In September 1997, he contested finance charges posted to his account. In October, he cease making payments and told the credit card company he might resume payment when a dispute of the charges was resolved.

In 1998 he and the credit card company settled for $12,700. The credit card company sent the taxpayer and the IRS a Form 1099-C, Cancellation of Debt, reporting discharge of indebtedness income of $19,866.70. The taxpayer returned the Form 1099-C to the credit card company with a letter saying there never was a forgiveness of anything, but rather a compromise of a claim.

The taxpayer attached a statement to his 1998 return saying the cancellation of indebtedness income on the Form 1099-C was in error and should have been characterized as a compromise of doubtful and disputed claim. The IRS concluded that the taxpayer received cancellation of indebtedness income in 1998.

The Tax Court noted that there is no indication that the settlement with the credit card company was based on the taxpayer’s inability to pay, and he had denied being insolvent.

The taxpayer’s June 1996 balance was $28,837.61, he also had charges of $1,210 for the cash advance, and he made payments totaling $4,250 and a final payment of $12,700. Thus, the net uncontested liquidated balance that should be the amount of cancellation of indebtedness income is $13,097.61. (Geore W. Earnshaw, T.C. Memo, 2002-191)

If you have any questions or require further info please call 718-531-1105 or send an email.
This web site and these articles are not tax or legal advice and are not intended as tax or legal advice. They are intended to provide only general, non-specific legal information and are not intended to cover all the issues related to the topic discussed. The specific facts that apply to your matter may make the outcome different than would be anticipated by you. This web site and these articles are based on United States law. You should consult with an accountant or lawyer familiar with the issues. This web site and the articles contained on this web site are not solicitations.

Filed Under: News Articles Tagged With: cancellation of indebtedness, credit cards, dredit card debt, income, ordinary income, taxable

You may also be interested in

  • Lawsuit Settlements

    Lawsuit Settlements

  • Lawsuit Taxability – Get The Best Tax Results When Settling A Lawsuit

    Lawsuit Taxability – Get The Best Tax Results When Settling A Lawsuit

Search

Recent News Articles

  • 9/11 is a special day
  • IRS Accidentally Exposed Tens of Thousands of Social Security Numbers
  • IRS Tax Audits – When It Pays To Ignore An IRS Audit Notice
  • The Disappearing Check 21 Law – Check Clearing For The 21st Century
  • IRS Tax Audits – Know Your Rights Before An Audit Begins
Index Of All News Articles

More Information

Privacy Policy
Links
RSS Feed
Sitemap
Disclaimer

Contact Info:

Ronald Semaria
Semaria Consulting
1408 East 66th St
Brooklyn, NY 11234
Email: info@semaria.com
LinkedIn

Phone Numbers:

Phone: 718-531-1105
Toll-Free: 866-531-1105
Toll-Free: 888-IRSAUDIT
Toll-Free: 888-RONTAXES
Fax: 718-444-7152

Websites:

www.Semaria.com
www.DrFraud.com
www.IRSAudit.com
Copyright © Semaria Consulting 1970-2021