Litigating Cancellation of Indebtedness Income

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Jason B. Freeman

Jason B. Freeman

Managing Member


Mr. Freeman is the founding member of Freeman Law, PLLC. He is a dual-credentialed attorney-CPA, author, law professor, and trial attorney.

Mr. Freeman has been named by Chambers & Partners as among the leading tax and litigation attorneys in the United States and to U.S. News and World Report’s Best Lawyers in America list. He is a former recipient of the American Bar Association’s “On the Rise – Top 40 Young Lawyers” in America award. Mr. Freeman was named the “Leading Tax Controversy Litigation Attorney of the Year” for the State of Texas for 2019 and 2020 by AI.

Mr. Freeman has been recognized multiple times by D Magazine, a D Magazine Partner service, as one of the Best Lawyers in Dallas, and as a Super Lawyer by Super Lawyers, a Thomson Reuters service. He has previously been recognized by Super Lawyers as a Top 100 Up-And-Coming Attorney in Texas.

Mr. Freeman currently serves as the chairman of the Texas Society of CPAs (TXCPA). He is a former chairman of the Dallas Society of CPAs (TXCPA-Dallas). Mr. Freeman also served multiple terms as the President of the North Texas chapter of the American Academy of Attorney-CPAs. He has been previously recognized as the Young CPA of the Year in the State of Texas (an award given to only one CPA in the state of Texas under 40).

Weiderman v. Comm’r, T.C. Memo. 2020-109 | July 15, 2020 | Ashford, J. | Dkt. No. 14432-14

Short SummaryMrs. Weiderman accepted an executive marketing position with K-Swiss in 2006.  Under the terms of her employment offer, K-Swiss agreed to assist the Wediermans in their relocation to California, providing them with a $500,000 interest-free loan to help finance the purchase of a new residence.  K-Swiss and Mrs. Weiderman later executed a promissory note, dated February 15, 2007, which discussed the terms and conditions of the loan including that the loan was due and payable in full in one lump-sum payment on the earlier of February 15, 2017, or the effective date of her termination (whether voluntary or non-voluntary).  After the loan disbursement, the Weidermans used the loan proceeds to purchase a residence in California.

But on December 1, 2008, K-Swiss terminated Mrs. Weiderman’s employment.  Accordingly, K-Swiss demanded full payment of the $500,000 loan.  Ultimately, Mrs. Weiderman and K-Swiss agreed (through various settlement negotiations) that K-Swiss would cancel $285,000 of the loan with proceeds from the sale of the California residence satisfying the remaining loan balance.

In 2009 and 2010, Mr. and Mrs. Weiderman also claimed various business deductions on Schedules C.

Key Issue:  Whether the taxpayers:  (1) must include in gross income COD income of $255,000 and $30,000 for 2009 and 2010, respectively; (2) are entitled to deduct certain expenses they reported on their 2009 and 2010 Schedules C, Profit or Loss From Business; and (3) are liable for accuracy-related penalties.

Primary Holdings

Key Points of Law:

InsightThe Weiderman decision is a good illustration of the difficulties a taxpayer may face in attempting to fall within an exclusion to COD income under Section 108.  Taxpayers should be aware that in many instances (as in this case), the lender will issue a Form 1099 alerting the IRS that the debt has been cancelled.  In such a case, the IRS will often look to the debtor’s tax return to determine whether the COD income has been properly reported.  In many cases, with proper tax planning, taxpayers can provide better arguments and documentary proof to meet an exception under Section 108.


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