Tax News

CCH (cch.taxgroup.com) reports:

  A married couple was required to include in income Social Security disability benefits received by the wife and was not entitled to exclude discharge of indebtedness income arising from the forgiveness of certain credit card debt. Although the Social Security disability benefits reduced the amount the wife was entitled to receive tax-free under a private long-term disability (LTD) policy, the LTD policy only entitled the wife to receive benefits on top of what she received from Social Security. Pursuant to Code Sec. 86, the Social Security benefits were required to be included in income.

  The credit card debt which was relieved had been incurred for legal fees that the couple's attorney allegedly promised that they would be entitled to recoup. When the couple discovered they were not entitled to recoup such fees, they disputed the credit card charge and were relieved of the liability. Although the couple acknowledged that they were not eligible for any exception under Code Sec. 108 for discharge of indebtedness income, they claimed they should have been entitled to an offsetting theft loss for the attorney's misrepresentation. The couple failed, however, to establish that the alleged misrepresentation constituted a theft. Futhermore, even if such theft had occurred, it would have been deductible in a later year when the litigation concluded and they discovered they were not entitled to recoup the fees.

K.A. Seaver, TC Memo. 2009-270, Dec. 58,002(M)

Other References:

 
Code Sec. 86

  CCH Reference - 2009FED ¶6421.17

 
Code Sec. 108

  CCH Reference - 2009FED ¶7010.25

 
Code Sec. 165

  CCH Reference - 2009FED ¶10,101.103

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