On November 6, the U.S. Tax Court decided the case of Tran v. Commissioner.
This case involved a taxpayer who had credit card debt and hired a debt resolution company to negotiate a reduction in his account balances with two credit card companies, U.S. Bank and Wells Fargo.
Well, the debt resolution company was successful and reduced the taxpayer’s credit card debt by around over $6,000 at a cost of around $2,000. That was good news.
What was bad news was that the taxpayer realized cancellation of indebtedness income (“COI”) in the full amount of the credit card debt reduced.
Other bad news was that the fee paid to the debt resolution company was not an offset to the COI.
The good news was that the fee was allowed as a miscellaneous itemized deduction incurred to produce income.
Read more about the Tran case at DPS Legal Counsel’s Tax News newsletter for November 2012, which you can find at this link: Tax News November 2012.