In Uncategorized on 11/06/2017 at 17:33

Happily this is not the story of those on eternal patrol or on the site of a disaster that claimed many brave lives. This is Judge Vasquez bringing the right kind of relief to FloEtta Bullock, 2017 T. C. Memo. 219, filed 11/6/17.

IRS wanted to hit FloEtta with the wrong kind of relief, Section 61(a)(12) relief of indebtedness.

FloEtta claims she signed on the wrong line when her son borrowed money from the local credit union to buy a new dually for his business. Judge Vasquez takes pains to explain: “A dually truck is a truck with dual wheels on the rear axle for a total of four tires on the rear axle.” 2017 T. C. Memo. 219, at p. 2, footnote 1. It’s pronounced “dooly” by those who drive them.

Well, the tires, axles and everything else got stolen from out in front of FloEtta’s abode, the insurance didn’t cover the note, and the credit union waited five years to hit FloEtta with a 1099-C for the $8k underwater loan. Son and daughter-in-law stopped paying when the insurance settled.

Judge Vasquez: “However, the ultimate question regarding the existence of a bona fide debt is: ‘Was there a genuine intention to create a debt with a reasonable expectation of repayment, and did that intention comport with the economic reality of creating a debtor-creditor relationship?’” 2017 T. C. Memo. 219, at p. 6. (Citations omitted).

FloEtta was a guarantor. She didn’t get the loan proceeds or any benefit therefrom. To be relieved of indebtedness, there must be a bona fide debt. The theory is that relief from the debt frees up the debtor’s other assets, resulting in an accretion to wealth. But the credit union never pursued FloEtta, sued FloEtta, or did anything but send the belated Form 1099-C.

“When petitioner went to the car dealership, she did not intend to be the primary obligor on the loan.  In fact, she did not realize until trial that she had signed paperwork stating otherwise.  She did not intend to personally repay the loan, and she made no payments on the loan.  See Monon R.R. v. Commissioner, 55 T.C. 345, 357 (1970) (‘The intent of the parties, in turn, may be reflected by their subsequent acts[.]’).  The credit union also understood that petitioner intended only to be a cosigner; it was aware that petitioner’s son and daughter-in-law were responsible for the loan payments, and it never looked to petitioner for repayment.  See id.  Without an intention for petitioner to repay the debt, there was no bona fide primary obligation between petitioner and the credit union.” 2017 T. C. Memo. 219, at p. 7.

So FloEtta is relieved from being relieved.


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