Monday, April 29, 2013

Zarin v. Commissioner case brief

Zarin v. Commissioner case brief
916 F.2d 110,1990 U.S. App. 17775, 90-2 U.S. Tax Cas. (CCH) P50,530; 66 A.F.T.R.2d (RIA) 5679

CASE SYNOPSIS: Appellants, a taxpayer and his wife, sought review of the decision of the United States Tax Court holding that taxpayer recognized income from discharge of indebtedness resulting from his gambling activities and that he should be taxed on the income.

FACTS: Appellant taxpayer was extended gambling credit by casino and became a compulsive gambler. The state casino control commissioner issued an emergency order making further extension of credit to the taxpayer illegal, but the casino continued to extend credit. The taxpayer ran up a debt in excess of three million dollars and the casino filed suit to collect. The taxpayer stated that the debt was unenforceable under state law, and the matter settled for $ 500,000.00. The Internal Revenue Service asserted that the forgiven portion of the contested debt was income to the taxpayer and imposed tax. The tax court agreed and the taxpayer appealed. The court reversed the tax court's decision and remanded the matter on the grounds that the taxpayer realized no income tax by reason of his settlement with a third party creditor.

CONCLUSION: Decision of the tax court was reversed and remanded because the taxpayer realized no income by reason of his settlement of his gambling debt with a third party creditor.
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