Background
Resorts International Hotel & Casino ("Resorts") granted David Zarin ("Zarin") a credit line of $10,000 in June, 1978. Pursuant to this arrangement, Zarin could write a check ("marker") and in return receive chips in order to gamble at the casino's tables. Over time Resorts regularly increased his credit line, and by November, 1979, Zarin's permanent line of credit had reached $200,000. The New Jersey Division of Gaming Enforcement filed with the New Jersey Casino Control Commission a complaint against Resorts in response to allegations of credit abuse. Subsequently, a Casino Control Commissioner issued an Emergency Order which made further credit extensions to Zarin illegal. Nevertheless, Resorts continued to extend Zarin's credit limit. In April, 1980, Zarin delivered personal checks and counterchecks to Resorts which were returned as having been drawn against insufficient funds. Those dishonored checks totaled $3,435,000. In response, Resorts cut off Zarin's credit and filed action in New Jersey state court. Resorts and Zarin settled their dispute for a total of $500,000.
The Commissioner subsequently determined deficiencies in Zarin's federal income taxes, arguing that Zarin had recognized $2,935,000 of income in 1981 from the cancellation of indebtedness which resulted from the settlement with Resorts. The Tax Court agreed with the Commissioner.
Read more about this topic: Zarin V. Commissioner
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