McGowen v. Com’r., 438 Fed. Appx. 686, T.C. Memo. 2009-285 (10th Cir. 2011)

(taxpayers’ debt on variable life insurance policy exceeded cash surrender value; insurance company notified taxpayers if they did not make minimum loan repayment, policy would terminate resulting in taxable event and filing of 1009-R; taxpayers claimed discharge of indebtedness excludable from gross income due to insolvency; IRS assessed $171,631 income tax deficiency against taxpayers for 2004 tax year, determining taxpayers joint return mischaracterized proceeds from termination of life insurance contract as discharge of debt; U.S. tax court agreed with IRS position, and 10th Circuit Court of Appeals affirmed; discharge of indebtedness only occurs when debts are legally discharged; taxpayers did not prove discharge or insolvency, and were required to report gain as income).