Earnshaw v. Commissioner

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
September 22, 2005
FOR THE TENTH CIRCUIT
Clerk of Court
GEORGE W. EARNSHAW,
Petitioner-Appellant,
v. No. 02-9015
(Tax Ct. No. 5221-01)
COMMISSIONER OF INTERNAL
REVENUE,
Respondent-Appellee.
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
*
This order and judgment is not binding precedent, except under the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.
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
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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
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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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
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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
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