Brief Fact Summary. Petitioner continuously received lines of credit from a casino. He was a compulsive gambler and ran up a debt of over $3.4 million. He contested this amount arguing that the casino should not have continued the line of credit, and they settled from $500,000.
Synopsis of Rule of Law. If a taxpayer in good faith disputes the amount of a debt, then the subsequent settlement of the debt should be treated as the amount of debt for tax purposes.
Facts. Petitioner, Zarin, was a professional engineer who was involved in the development of housing projects. He was granted a credit of $10,000 to gamble at a casino in Atlantic City. He eventually received a permanent line of credit of $200,000. He lost $2.5 million at the craps table over a short-time period and he paid it in full. He accumulated a gambling debt of $3,435,000 by 1980 after the casino continued to give him lines of credit. He settled with the resort for $500,000. The Commissioner determined that Petitioner should have reported the cancellation of the indebtedness as income. The Tax Court affirmed the Commissioner.
Issue. Did Petitioner receive income from the discharge of the indebtedness?