T.C. Memo. 2008-244



                       UNITED STATES TAX COURT



              DAVID ISAAC PLOTINSKY, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 4094-07.                 Filed October 29, 2008.



     David Isaac Plotinsky, pro se.

     Kelly R. Morrison-Lee, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     CHIECHI, Judge:    Respondent determined a deficiency of $761

in petitioner’s Federal income tax (tax) for his taxable year

2004.

     The issue for decision is whether petitioner is entitled for

his taxable year 2004 to exclude from gross income under section
                               - 2 -

102(a)1 $3,043 of a certain loan of petitioner that the creditor

discharged.   We hold that he is not.

                          FINDINGS OF FACT

     All of the facts in this case, which the parties submitted

under Rule 122, have been stipulated by the parties and are so

found.

     Petitioner resided in Washington, D.C., at the time he filed

the petition in this case.

     During 1993 through 1997, petitioner financed a portion of

his college education through a Federal loan with United Student

Aid Funds, Inc. (petitioner’s college loan).   During 1997 through

2000, petitioner financed a portion of his law school education

with several Federal loans with Access Group (petitioner’s law

school loans).   (We shall refer collectively to petitioner’s

college loan and petitioner’s law school loans as petitioner’s

Federal student loans.)

     As part of its business, Key Bank USA/American Education

Services (AES) offered to consolidate student loans like peti-

tioner’s Federal student loans.   As an incentive designed to

induce individuals with student loans to consolidate those loans

with AES, AES offered an on-time payment incentive program (AES’s

incentive program).   Pursuant to AES’s incentive program, if an


     1
      All section references are to the Internal Revenue Code in
effect for the year at issue. All Rule references are to the Tax
Court Rules of Practice and Procedure.
                               - 3 -

individual were to consolidate the individual’s student loans by

taking out a loan from AES (AES loan) and the individual were to

make 36 consecutive on-time monthly payments on the AES loan, AES

would discharge a portion of that loan.

     Petitioner was aware of AES’s incentive program when in

August 2001, after graduating from law school, he consolidated

petitioner’s Federal student loans through AES (petitioner’s

consolidated student loan).   The promissory note and the repay-

ment schedule that petitioner signed and that evidenced peti-

tioner’s consolidated student loan did not address any incentive

program with respect to the repayment of that loan.

     During 2004, the year at issue, petitioner’s employer, the

United States House of Representatives, made $6,288 of payments

on petitioner’s behalf on petitioner’s consolidated student loan.

During that year, petitioner did not make any additional payments

on that loan.

     In 2004, pursuant to AES’s incentive program and as a result

of 36 consecutive on-time payments having been made on peti-

tioner’s consolidated student loan, AES discharged $3,043 of that

loan.

     AES issued Form 1099-C, Cancellation of Debt (2004 Form

1099-C), to petitioner for his taxable year 2004.    That form

showed $3,043.28 as the amount of debt canceled.    The instruc-

tions to the 2004 Form 1099-C that AES sent to petitioner stated
                               - 4 -

in pertinent part:   “Generally, if you are an individual, you

must include the canceled amount on the ‘Other Income’ line of

Form 1040. * * * However, some canceled debts are not includible

in your income.”

     Petitioner timely filed Form 1040, U.S. Individual Income

Tax Return, for his taxable year 2004 (petitioner’s 2004 return).

In that return, petitioner reported gross income of $76,917 that

did not include the $3,043.28 of petitioner’s consolidated

student loan that AES discharged.

     Petitioner attached to petitioner’s 2004 return a document

(petitioner’s attachment to petitioner’s 2004 return) that stated

in pertinent part:

          I received a Form 1099-C from AES Graduate &
     Professional Loan Services (“AES”), which stated a
     cancellation of debt in the amount of $3043.28. I am
     not reporting this amount as income because it is my
     reading of Internal Revenue Service Pub. 525, at 17-18,
     that this cancellation constitutes a gift rather than
     income.

          AES is the lender with which I consolidated my law
     school loans approximately three years ago. As an
     incentive to select AES as my lender, AES offered a
     reduction in the total amount of my loans, and it is
     this offer that forms the entire basis for the debt
     cancellation of $3043.28. The offer was contingent
     upon my making 36 consecutive on-time monthly payments,
     and now that this has been achieved the debt cancella-
     tion is locked in.

     On November 13, 2006, respondent issued a notice of defi-

ciency to petitioner for his taxable year 2004.   In that notice,
                               - 5 -

respondent determined to include in gross income the $3,0432 of

petitioner’s consolidated student loan that AES discharged.

                              OPINION

     Petitioner bears the burden of proving that the determina-

tion in the notice is erroneous.3   See Rule 142(a); Welch v.

Helvering, 

, 115 (1933).    That this case was submit-

ted fully stipulated does not change that burden or the effect of

a failure of proof.   See Rule 122(b); Borchers v. Commissioner,

, 91 (1990), affd. 

(8th Cir. 1991).

     It is petitioner’s position that he is entitled for his

taxable year 2004 to exclude from gross income under section

102(a) $3,043 of petitioner’s consolidated student loan that AES

discharged in that year.

     Section 61(a) defines the term “gross income” broadly to

mean all income from whatever source derived.   Generally, income

from the discharge of indebtedness is includible in gross income.

Sec. 61(a)(12).   There are, however, certain exceptions to that

general rule.   One of those exceptions on which petitioner relies

is found in section 102(a).   As pertinent here, section 102(a)



     2
      We presume that respondent rounded down to the nearest
dollar the $3,043.28 shown in the 2004 Form 1099-C. For conven-
ience, when referring to the amount of petitioner’s consolidated
student loan that AES discharged in 2004, we shall hereinafter
round that amount down to the nearest dollar.
     3
      Petitioner does not claim that the burden of proof shifts
to respondent under sec. 7491(a).
                               - 6 -

excludes from gross income the value of property acquired by

gift.   If the discharge of a loan constitutes a gift from the

creditor to the debtor, the debtor has no income as a result of

that discharge.   See

petitioner’s position under section 102(a),

petitioner relies on Helvering v. Am. Dental Co., 

(1943), and argues that, because AES received nothing from

petitioner in return for its discharge of $3,043 of petitioner’s

consolidated student loan, the amount discharged was a gift from

AES to him.   According to petitioner,

     The cancellation of a portion of Petitioner’s debt by
     AES falls squarely under the Supreme Court’s definition
     of a gift as “a release of something to the debtor for
     nothing.” [Helvering v. Am. Dental Co., 

,
     331 (1943).] * * * regardless of the AES “on time
     incentive” program, Petitioner was already under an
     independent obligation under the terms of his loan
     agreement with AES to make continual timely payments.
     Because the “on time incentive” merely cancelled a
     portion of Petitioner’s debt for doing something that
     he was already contractually obligated to do anyway,
     the cancellation of debt was “a release of something to
     the debtor for nothing” and therefore can only be
     construed as a gift. * * *

     Petitioner’s reliance on Helvering v. Am. Dental 

,

to support his position under section 102(a) is misplaced.    In

contrast to the finding in that case that there was “a release of

something to the debtor [the taxpayer] for nothing,”

we find on the record before us that petitioner has failed to

carry his burden of establishing that AES’s discharge of $3,043

of petitioner’s consolidated student loan pursuant to AES’s
                               - 7 -

incentive program was “a release of something to the debtor

[petitioner] for nothing”.

found on that

record that AES offered AES’s incentive program in order to

induce individuals like petitioner to consolidate their student

loans with AES.   We have also found on the record before us that

in 2004, pursuant to AES’s incentive program and as a result of

36 consecutive on-time payments having been made on petitioner’s

consolidated student loan, AES discharged $3,043 of that loan.

As petitioner acknowledged in petitioner’s attachment to peti-

tioner’s 2004 return:   “As an incentive to select AES as my

lender, AES offered a reduction in the total amount of my loans,

and it is this offer that forms the entire basis for the debt

cancellation of $3043.28.”   On the record before us, we find that

petitioner has failed to carry his burden of establishing that

AES received nothing from petitioner in return for its discharge

of $3,043 of petitioner’s consolidated student loan.

     Even if we had found that AES received nothing in return for

its discharge of $3,043 of petitioner’s consolidated student

loan, petitioner’s reliance on Helvering v. Am. Dental 

, nonetheless would be misplaced.    In that case, the tax-

payer owed delinquent rent to his lessor and delinquent interest

to his creditors.

   The taxpayer’s lessor dis-

charged a portion of that delinquent rent, and the taxpayer’s

creditors discharged all of that delinquent interest.

-

taxpayer argued that the discharged rent and the discharged

interest constituted gifts under section 22(b)(3) of the Revenue

Act of 1936, a predecessor of section 102(a).4

  The

Supreme Court of the United States (Supreme Court) held that the

taxpayer’s discharged rent and discharged interest constituted

gifts under section 22(b)(3) of the Revenue Act of 1936.

      In so holding, the Supreme Court explained that the “for-

giveness was gratuitous, a release of something to the debtor for

nothing, and sufficient to make the cancellation here gifts

within the statute [section 22(b)(3) of the Revenue Act of

1936].”

v. Jacobson, 

, 50-51

(1949), the Supreme Court clarified what it said in Helvering v.

Am. Dental 

, and the meaning of the term “gift” in

section 22(b)(3) of the Revenue Act of 1938 and section 22(b)(3)

of the 1939 Code.5      In Jacobson, the taxpayer acquired a 99-year



       4
      Sec. 22(b)(3) of the Revenue Act of 1936, ch. 690, 49 Stat.
1657, was reenacted in the Revenue Act of 1938, ch. 289, sec.
22(b)(3), 52 Stat. 458, and was codified as sec. 22(b)(3) of the
Internal Revenue Code of 1939 (1939 Code), ch. 2, 53 Stat. 10.
The Revenue Act of 1942, ch. 619, sec. 111(a), 56 Stat. 809, made
changes not pertinent here to sec. 22(b)(3) of the 1939 Code.
Sec. 22(b)(3) of the 1939 Code, as amended by the Revenue Act of
1942, was reenacted with changes not pertinent here as sec.
102(a) of the Internal Revenue Code of 1954 (1954 Code), ch. 736,
68A Stat. 28. Sec. 102(a) of the 1954 Code was reenacted with no
changes as sec. 102(a) of the Internal Revenue Code of 1986. Tax
Reform Act of 1986, Pub. L. 99-514, sec. 2, 100 Stat. 2095.
       5
        See supra note 4.
                                 - 9 -

leasehold interest in certain property and the improvements on

that property.

  Several years later the taxpayer

borrowed money from a bank.

that loan, the

taxpayer executed 200 bonds secured by a trust deed on his

leasehold interest and the improvements thereon.

purchased those bonds.

  There-

after, the value of the taxpayer’s leasehold interest and the

improvements thereon sharply declined, and the taxpayer, who was

solvent although in difficult financial circumstances, repur-

chased at less than face value his bonds from the bondholders.

   The issue presented in Jacobson was whether the

difference between the face value of each of the bonds over the

amount that the taxpayer paid to each bondholder was a gift to

the taxpayer by each bondholder under section 22(b)(3) of the

Revenue Act of 1938 for one of the years involved in Jacobson and

under section 22(b)(3) of the 1939 Code for the remaining two

years involved in Jacobson.

  The Supreme Court

held that no gifts occurred under that section.

   In

so holding, the Supreme Court reasoned that there was no gift

under section 22(b)(3) of the Revenue Act of 1938 and section

22(b)(3) of the 1939 Code unless the facts established that the

transferor intended to make a gift.

  According to the

Supreme Court:

     There was no suggestion in the evidence or the findings
     that any bondholder was acting from any interest other
                             - 10 -

     than his own. Each transaction was a sale. The seller
     sought to get as high a price as he could for the bond
     and the buyer sought to pay as low a price as he could
     for the same bond. If the transaction had been com-
     pletely on the open market through a stock exchange,
     the conduct and intent of each party could have been
     the same and there would have been little, if any,
     basis for any claim that the respondent’s gain was not
     taxable income. The mere fact that the seller knew
     that he was selling to the maker of the bond as his
     only available market did not change the sale into a
     gift. In the absence of proof to the contrary, the
     intent of the seller may be assumed to have been to get
     all he could for his entire claim. Although the sales
     price was less than the face of the bond and less than
     the original issuing price of the bond, there was
     nothing to indicate that the seller was not getting all
     that he could for all that he had. There is nothing in
     the evidence or findings to indicate that he intended
     to transfer or did transfer something for nothing.
     * * * The seller did not first release the maker from a
     part of the maker’s obligation and, having made the
     maker a gift of that release, then sell him the balance
     of the bond or vice versa. If the seller actually had
     intended to give the maker some gift[,] the natural
     reflection of that gift would have been a credit on the
     face of the bond or at least some record or testimony
     evidencing the release. * * * It is quite possible that
     a bondholder might make a gift of an entire bond to
     anyone, including the maker of it. The facts and
     findings in this case do not establish any such intent
     of the seller to make a gift in contradiction of the
     natural implications arising from the sales and assign-
     ments which he made. It is conceivable, although
     hardly likely, that a bondholder, in the ordinary
     course of business and without any express release of
     his debtor, might have sold part of his claims on the
     bonds he held at the full face value of those parts and
     then have made a gift of the rest of his claims on
     those bonds to the same debtor “for nothing.” It is
     that kind of extraordinary transaction that the respon-
     dent asks us, as a matter of law, to read into the
     simple sales which actually took place and from which
     he derived financial gains. We are unable to do so on
     the findings before us. * * *

       In Commissioner v. Duberstein, 

(1960), the

Supreme Court further clarified the meaning of the term “gift” in

section 22(b)(3) of the 1939 Code.6          Duberstein involved two

consolidated cases.

    In one of those cases, the

taxpayer, Mr. Duberstein, was president of a company that had

done business for a number of years with another company, Mohawk

Metal Corporation (Mohawk).

  From time to time, the

president of Mohawk, Mr. Berman, asked Mr. Duberstein whether he

knew of potential customers for Mohawk’s products, and Mr.

Duberstein provided Mr. Berman with some names.

telephoned Mr. Duberstein and told him that the

information that Mr. Duberstein gave Mr. Berman regarding poten-

tial customers had been so helpful that he wanted to give Mr.

Duberstein a present.

Mr. Berman that

he owed him nothing.

that Mr.

Duberstein accept a Cadillac as a gift from Mohawk, and Mr.

Duberstein ultimately relented and accepted the Cadillac.

      Mr. Duberstein excluded the Cadillac from his gross

income as a gift under section 22(b)(3) of the 1939 Code.

      The Commissioner of Internal Revenue (Commissioner) deter-

mined that the value of the Cadillac was includible in Mr.

Duberstein’s gross income.

of the United

States, the predecessor of this Court, upheld that determination.


       6
        See supra note 4.
                                - 12 -

Court of Appeals for the Sixth Circuit

(Court of Appeals for the Sixth Circuit) disagreed and reversed

the decision for the Commissioner of the Tax Court of the United

States.

reversed the judgment of the

Court of Appeals for the Sixth Circuit.

      In the other case involved in Duberstein, the taxpayer, Mr.

Stanton, had been employed by Trinity Church (Trinity) for

approximately ten years when its board of directors (Trinity’s

board) terminated the treasurer of Trinity Operating Co. (trea-

surer), Trinity’s wholly owned subsidiary that managed its real

estate holdings.

   At a special meeting of

Trinity’s board, Mr. Stanton asked Trinity’s board to reconsider

the treasurer’s termination.

   The minutes from that

meeting reflected that “‘resentment was expressed as to the

“presumptuous” suggestion that the action of the Board, taken

after long deliberation, should be changed.’”

did give the treasurer the opportunity to resign

rather than be discharged.

did not

resign, Trinity’s board terminated his employment.

Trinity’s board agreed to pay the treasurer six

months’ salary.

   Thereafter, Mr. Stanton submit-

ted his resignation “in order to avoid any such embarrassment or

question at any time as to his willingness to resign if the Board

desired”.

  Trinity’s board did not accept his
                                - 13 -

resignation.

submitted his resignation

the following week, and Trinity’s board accepted it.

resignation, Trinity’s board passed a resolution

that stated in pertinent part:     “‘in appreciation of the services

rendered by Mr. Stanton . . . a gratuity is hereby awarded to him

of Twenty Thousand Dollars, payable to him in equal installments

of Two Thousand Dollars at the end of each and every month’”.

   After Trinity’s board passed the resolution

regarding Mr. Stanton, a member of that board stated:     “We were

all unanimous in wishing to make Mr. Stanton a gift.”

   Mr. Stanton excluded the total amount of the payments from

his gross income as a gift under section 22(b)(3) of the 1939

Code.

  The Commissioner determined that that total

amount was includible in Mr. Stanton’s gross income.

the tax attributable to that determination and

commenced suit for a refund in the United States District Court

for the Eastern District of New York (District Court).

held that the total amount of payments to Mr.

Stanton constituted a gift under section 22(b)(3) of the 1939

Code.

Court of Appeals for the Second

Circuit (Court of Appeals for the Second Circuit) disagreed and

reversed the judgment of the District Court.

vacated the judgment of the Court of Appeals for the Second

Circuit and remanded the case to the District Court “for further
                              - 14 -

proceedings not inconsistent with this opinion.”

     In considering the issue under section 22(b)(3) of the 1939

Code presented in each of the cases involved in Duberstein, the

Supreme Court set forth the principles under which each of those

issues was to be resolved.   According to the Supreme Court:

     the statute [section 22(b)(3) of the 1939 Code] does
     not use the term “gift” in the common-law sense, but in
     a more colloquial sense. This Court has indicated that
     a voluntarily executed transfer of * * * property by
     one to another, without any consideration or compensa-
     tion therefor, though a common-law gift, is not neces-
     sarily a “gift” within the meaning of the statute. For
     the Court has shown that the mere absence of a legal or
     moral obligation to make such a payment does not estab-
     lish that it is a gift. Old Colony Trust Co. v. Com-
     missioner, 

, 730 [(1929)]. And, impor-
     tantly, if the payment proceeds primarily from “the
     constraining force of any moral or legal duty,” or from
     “the incentive of anticipated benefit” of an economic
     nature, Bogardus v. Commissioner, 

, 41
     [(1937)], it is not a gift. * * * A gift in the statu-
     tory sense, on the other hand, proceeds from a ”de-
     tached and disinterested generosity,” Commissioner v.
     LoBue, 

, 246 [(1956)]; “out of affection,
     respect, admiration, charity, or like impulses.”
     Robertson v. United States, * * * [

, 714
     (1952)]. And in this regard, the most critical consid-
     eration * * * is the transferor’s “intention.”
     Bogardus v. Commissioner, 

, 43 [(1937)].
     “What controls is the intention with which payment,
     however voluntary, has been made.”

(dis-
     senting opinion).

          The Government says that this “intention” of the
     transferor cannot mean what the cases on the common-law
     concept of gift call “donative intent.” With that we
     are in agreement, for our decisions fully support this.
     Moreover, the Bogardus case itself makes it plain that
     the donor’s characterization of his action is not
     determinative--that there must be an objective inquiry
     as to whether what is called a gift amounts to it in
     reality. * * * [Fn. refs. omitted.]
                             - 15 -

     In the case involving Mr. Duberstein, the Supreme Court

applied the above-quoted principles and concluded:

     we are in agreement, on the evidence we have set forth,
     that it cannot be said that the conclusion of the Tax
     Court was “clearly erroneous.” It seems to us plain
     that as trier of the facts it was warranted in conclud-
     ing that despite the characterization of the transfer
     of the Cadillac by the parties and the absence of any
     obligation, even of a moral nature, to make it, it was
     at bottom a recompense for Duberstein’s past services,
     or an inducement for him to be of further service in
     the future. We cannot say with the Court of Appeals
     that such a conclusion was “mere suspicion” on the Tax
     Court’s part. * * *

     In the case involving Mr. Stanton, the Supreme Court applied

the above-quoted principles and concluded:

     it is critical here that the District Court as trier of
     fact made only the simple and unelaborated finding that
     the transfer in question was a “gift.” To be sure,
     conciseness is to be strived for, and prolixity
     avoided, in findings; but, * * * there comes a point
     where findings become so sparse and conclusory as to
     give no revelation of what the District Court’s concept
     of the determining facts and legal standard may be.
     * * * Such conclusory, general findings do not consti-
     tute compliance with Rule 52’s[7] direction to “find the
     facts specially and state separately . . . conclusions
     of law thereon.” While the standard of law in this
     area is not a complex one, we * * * think the
     unelaborated finding of ultimate fact here cannot stand
     as a fulfillment of these requirements. It affords the
     reviewing court not the semblance of an indication of
     the legal standard with which the trier of fact has


     7
      In referring to “Rule 52”, the Supreme Court was referring
to Fed. R. Civ. P. 52(a) in effect when the District Court
entered its judgment. That rule was amended with changes not
pertinent here. See Fed. R. Civ. P. 52(a).
                              - 16 -

     approached his task. For all that appears, the Dis-
     trict Court may have viewed the form of the resolution
     or the simple absence of legal consideration as conclu-
     sive. While the judgment of the Court of Appeals
     cannot stand, * * * [we] think there must be further
     proceedings in the District Court looking toward new
     and adequate findings of fact. * * * [Fn. ref. omit-
     ted.]

     In relying solely on Helvering v. Am. Dental Co., 

(1943), to support his position that AES’s discharge of

$3,043 of petitioner’s consolidated student loan constituted a

gift under section 102(a), petitioner fails to acknowledge that

the Supreme Court in Commissioner v. 

,

and Commissioner v. 

, requires us

to consider AES’s intention in discharging $3,043 of petitioner’s

consolidated student loan.   We shall do so now.

     We have found that AES offered AES’s incentive program in

order to induce individuals like petitioner to consolidate their

student loans with AES.   We have also found that in 2004, pursu-

ant to AES’s incentive program, AES discharged $3,043 of peti-

tioner’s consolidated student loan because 36 consecutive on-time

payments had been made on that loan.   On the record before us, we

find that AES did not intend to discharge $3,043 of petitioner’s

consolidated student loan out of “detached and disinterested

generosity”, Commissioner v. LoBue, 

, 246 (1956), or

“out of affection, respect, admiration, charity or like im-

pulses”, Robertson v. United States, 

, 714 (1952).
                               - 17 -

See Commissioner v. Duberstein, supra at 285.   On that record, we

further find that petitioner has failed to carry his burden of

establishing that, in discharging $3,043 of petitioner’s consoli-

dated student loan, AES intended to make a gift to him.8

     Based upon our examination of the entire record before us,

we find that the $3,043 of petitioner’s consolidated student loan

that AES discharged is not excludable for his taxable year 2004

from his gross income under section 102(a).   On that record, we

further find that petitioner must include for that year that

amount in his gross income.9

     We have considered all of the parties’ respective conten-

tions and arguments that are not discussed herein, and we find

them to be without merit, irrelevant, and/or moot.




     8
      In making our findings regarding AES’s intention in dis-
charging $3,043 of petitioner’s consolidated student loan, we
have not relied merely on the 2004 Form 1099-C that AES issued to
petitioner and that showed $3,043 as the amount of debt canceled.
We have relied upon the entire record before us in making those
findings.
     9
      On brief, petitioner further argues that, even if we were
to find that the $3,043 of petitioner’s consolidated student loan
that AES discharged is includible in his gross income, he should
recognize that income over the remaining life of petitioner’s
consolidated student loan. We reject that argument. Income from
the discharge of indebtedness is income for the year in which the
indebtedness is discharged. Sec. 61(a)(12); see Jelle v. Commis-
sioner, 

(2001).
                        - 18 -

To reflect the foregoing,


                                  Decision will be entered

                             for respondent.