Only a sip away for Mary Bui, 2019 T. C. Memo. 54, filed 5/21/19. IRS claims Mary omitted $355K of canceled debt from her return for the year at issue. Mary gets about $48K from Judge Goeke, but gets hit for the rest.

We remember the Qualified Principal Residence Indebtedness largesse, now off the books but active for Mary’s year. The problem is that Mary can only show $12K of one of the mortgage loans out from under which she walked was used to expand and repair the driveway in principal residence. The $10K of custom drapery doesn’t count. The magic words are “…used to acquire, construct, or substantially improve the taxpayer’s primary residence, and that residence must secure the loan.” 2109 T. C. Memo. 54, at p. 10. If the debt wasn’t so secured and so used, no dice.

And anyway, Section 108(h)(4) limits Mary’s QPRI exclusion to about $5K, the difference between what debt was canceled and what wasn’t QPRI.

Mary claims she was insolvent when debt canceled, and IRS agrees. So Section 108(a)(1)(B). But Mary was only underwater around $42K, and you can’t cancel more debt than gets you to zero.

Mary tries for a goal-line save, but has forgotten, or never heard, Taishoff’s Law:  “Stipulate, Don’t Capitulate.”

“Petitioner suggests that respondent did not accurately account for her assets and liabilities when calculating her insolvency.  However, petitioner stipulated respondent’s insolvency calculations and has offered no coherent argument as to why the calculations are in error.” 2019 T. C. Memo. 54, at p. 12.