Earshaw v. Commissioner of Internal, (10th Cir. 2005)

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UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

GEORGE W. EARNSHAW,

Petitioner-Appellant,

v.

COMMISSIONER OF INTERNAL

REVENUE,

Respondent-Appellee.

No. 02-9015

(Tax Ct. No. 5221-01)

ORDER AND JUDGMENT(*)

Before TYMKOVICH, HOLLOWAY, and

ANDERSON, Circuit Judges.

After examining the briefs and appellate record, this panel has determined

unanimously that oral argument would not materially assist the determination

of this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case

is

therefore ordered submitted without oral argument.

Petitioner-appellant George W. Earnshaw, proceeding pro se, appeals the

decision of the United States Tax Court determining that there is a deficiency in

income tax due from him for the taxable year 1998. Our jurisdiction arises under

26 U.S.C. 7482(a)(1). We affirm.

In January 2001, the Commissioner of Internal Revenue mailed a notice of

deficiency to petitioner, informing him that there was a deficiency in income tax

due from him for 1998 in the amount of $3,514. The deficiency was based on the

Commissioner's determination, under 26 U.S.C. 61(a)(12), that petitioner

received unreported discharge-of-indebtedness income in 1998 in the amount of

$19,866 as the result of a settlement he entered into with MBNA America Bank

(MBNA) regarding his credit card account. Petitioner then petitioned the Tax

Court for a redetermination of the deficiency. After conducting a trial and

granting the parties an opportunity to file post-trial briefs addressing the pertinent

issues, the Tax Court entered a memorandum and opinion finding that petitioner

received discharge-of-indebtedness income in 1998 as the result of the settlement

of his MBNA credit card account, but the court found that the amount was only

$13,097.61. See R., Vol. I, No. 18 at 8. Based on this redetermined deficiency,

the Tax Court entered a decision finding that there is a deficiency in income tax

due from petitioner for 1998 in the amount of $1,991. Id., No. 20.

Petitioner claims the Tax Court erred in determining that he received

discharge-of-indebtedness income in 1998 as the result of the settlement with

MBNA. Petitioner claims that he disputed the amount he owed on his credit card

account, and he claims that the entire underlying debt therefore fell within the

"contested liability" exception to discharge-of-indebtedness income.(1)

In its memorandum and opinion, the Tax Court rejected petitioner's claim

that his entire credit card account balance constituted a "contested liability."

Instead, based on two written statements he submitted to MBNA in June 1996, see

R., Vol. II, Ex. 5-J, the Tax Court found that petitioner did not dispute that he

owed $29,837.61 on his credit card account as of May 1996, id., Vol. I, No. 18

at 2, 6-8. Thus, the court determined that the $29,837.61 was not a contested

liability, and it further determined that petitioner received $13,097.61 in

discharge-of-indebtedness income in 1998 after accounting for: (1) certain

payments he made on his credit card account after May 1996; (2) a cash advance

he received using his credit card in August 1996; and (3) the $12,700 he paid to

MBNA in January 1998 to settle his account. Id. at 3, 6-8. The Tax Court also

found, however, that petitioner did dispute certain finance charges and late fees

that MBNA assessed against his credit card account after June 1996, and the court

determined that those amounts did not constitute discharge-of-indebtedness

income. Id. at 7-8.

"Decisions of the United States Tax Court are reviewed 'in the same

manner and to the same extent as decisions of the district courts in civil actions

tried without a jury.'" Preslar v. Comm'r, 167 F.3d 1323, 1326

(10th Cir. 1999)

(quoting 26 U.S.C. 7482(a)(1)). Consequently, "[w]e review the Tax Court's

factual findings for clear error and its legal conclusions de novo." Id. "A finding

of fact is clearly erroneous if it is without factual support in the record or if the

appellate court, after reviewing all the evidence, is left with a definite and firm

conviction that a mistake has been made." Tosco Corp. v. Koch Indus., Inc., 216

F.3d 886, 892 (10th Cir. 2000) (quotations omitted).

In this appeal, petitioner claims the Tax Court erred in finding that the

$29,837.61 was not a contested liability. Because this is a factual issue,

petitioner had the initial burden of proof to come forward with credible

evidence to support his claim that he disputed owing the $29,837.61 to MBNA.

See 26 U.S.C. 7491(a)(1). However, during the proceedings before

the Tax

Court, petitioner failed to put forth evidence showing that he had disputed any of

the charges that comprised the $29,837.61. Instead, he argued that the written

statements he submitted to MBNA in June 1996 were not admissions regarding

the amount he owed on his credit card account at that time, but were only

acknowledgments regarding his account balance as set forth on the statement he

received from MBNA in May 1996. See R., Vol. I, No. 21 at 1, 4. Even if

petitioner's claim about his written statements is true, he still had the initial

burden of proof to come forward with credible evidence showing that he had

disputed some or all of the charges that comprised the $29,837.61 account

balance, and he failed to satisfy that burden. Accordingly, we conclude that the

Tax Court's finding that the $29,837.61 was not a contested liability is not clearly

erroneous.

The decision of the Tax Court is AFFIRMED.

Entered for the Court

William J. Holloway, Jr.

Circuit Judge

FOOTNOTES

Click footnote number to return to corresponding location in the text.

*. This order and judgment is not binding

precedent, except under the

doctrines of law of the case, res judicata, and collateral estoppel. The court

generally disfavors the citation of orders and judgments; nevertheless, an order

and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.

1. "The concept of

discharge-of-indebtedness income, . . . codified in

26 U.S.C. 61(a)(12), requires taxpayers who have incurred a financial

obligation that is later discharged in whole or in part, to recognize as taxable

income the extent of the reduction in the obligation." Preslar v. Comm'r, 167

F.3d 1323, 1327 (10th Cir. 1999). A discharged debt is not treated as income,

however, if the taxpayer contested the debt. Thus, if a taxpayer contests the

original amount of an alleged debt in good faith, "a subsequent settlement of that

dispute is treated as the amount of debt cognizable for tax purposes. In other

words, the excess of the original debt over the amount determined to have been

due may be disregarded in calculating gross income." Id. (quotations omitted).

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