Items of Interest (Tax)

Items of Interest (Tax)

Linkugel (T.C. 12/1/09)

If F.1099 issued for debt cancellation in year after foreclosure, IRS must offer additional evidence of timing of debt cancellation.

An individual taxpayer was not liable for tax deficiency stemming from cancellation of indebtedness (COI) income in connection with outstanding indebtedness on a mortgage loan.  The government failed to meet its burden of production to show that a COI had occurred during the tax year at issue.  The burden of production shifted to the government under Code Sec. 6201 because an information return was the basis for determination of the tax deficiency, the taxpayer asserted a reasonable dispute regarding the COI income show on the return and the taxpayer fully cooperated with the government.  The government relied solely on the lender’s issuance of the Form 1099-C information return and provided no other evidence to show that a COI had occurred during the year at issue.  The actual foreclosure on the home had happened a number of years previously, and the mortgage lender’s issuance of an information return reporting the COI income was not dispositive of an intent to cancel the indebtedness or prove that COI income actually resulted.