While celebrating the birth of the American Republic (and remembering Ben Franklin’s famous caution: “A republic, madam, if you can keep it”), the blogger cannot rest from his labors if there’s a case to talk about.

So see my blogpost “Ignorance Is Bliss?”, 10/10/11, taking note of the subtitle “Gude faith, he maunna’ fau’ that”, in the words of Scotland’s greatest.

It’s not ignorance, but good faith that gives a win to Charles William & Charlotte Ann Ewing, Docket No. 22485-11S, a small-claimer filed 7/3/13.

As school is out at Tax Court today, I went back to yesterday’s crop for my holiday post, and Chas & Charly catch a break from STJ Daniel A. (“Yuda”) Guy, Jr., when Citibank drops a Form 1099-C after Chas settles with them on a teaser-rate credit card dispute.

And STJ Yuda gives us his conclusions via an off-the-bencher as a bonus.

STJ Yuda: “… Mr. Ewing received an offer from Citibank to borrow funds and pay low interest charges of 3.9% on the borrowed amounts. The ‘fine print’ at the bottom of the offer stated in relevant part: ‘However, if you default under any Card Agreement that you have with us, we may immediately increase the Annual Percentage Rate on all balances (including any promotional balances) to a variable default rate of 24.74%.’ Mr. Ewing testified that he accepted this offer….” Opinion, at p. 4.

Chas also testified he had problems making timely electronic payments on Citibank’s website, so Citibank sent him a letter jacking his APR to extortion, whereupon he protested and kept paying at the teaser rate until Citibank stopped taking his payments and sued him.

Chas went on defense, and the case settled with Chas paying the balance at the teaser rate. But neither party admitted liability in the settlement stipulation, and Citibank reserved the right to send Chas a 1099-C, which they did.

Chas never reported the COD, IRS send him a SNOD, and again Chas goes on defense.

IRS SNODs are presumed correct, of course.

STJ Yuda: “Petitioners rely on Zarin v. Commissioner, 23 916 F.2d 110, 115-116 (3d Cir. 1990), rev’g 92 T.C. 1084 (1989), for the proposition that a good faith dispute between a lender and borrower would cause a settlement not to give rise to an accession to income from cancellation of indebtedness. See Rood v.  Commissioner, T.C. Memo. 1996-248, n.13, aff’d without published opinion, 122 F.3d 1078 (11th Cir. 1997).” Opinion, at pp. 8-9.

While Chas’ records “leave something to be desired”, as STJ Yuda puts it, he did pay what was due under the teaser-rate deal, and he and Citibank had a good faith dispute about whether he defaulted. If there was a default, Chas claimed it was Citibank’s defective online payment system that caused it.

Anyway, the stipulation of settlement in State court didn’t expressly resolve any disputed issue (STJ Yuda calls it “an agreement to disagree”) and even though it expressly reserved to Citibank the option of filing a Form 1099-C, still Chas paid the balance per the teaser-rate term and Citibank accepted that.

STJ Yuda: “In sum, Mr. Ewing engaged Citibank in a legitimate dispute regarding the amount of debt, and in the light of the settlement the parties entered into we are unable to conclude that Mr. Ewing paid any more or any less to Citibank than he owed.” Opinion, at p. 11.

Chas wins it. Happy Fourth of July, Chas & Charly.