1099-C deceased spouse

[Bill Tubbs]

Client brought in 1099-C's that were issued in her deceased husband's SSN. He died in 2010, after a long health fight, that accrued lots in credit card debt on cards in his SSN.

Wisconsin is community property state. She continue to live in their house (which currently has $0 equity), so (in effect) she did inherit the house (and mortgage) from him upon his death and household belongings (which are far from extravagent). I have no doubt that if the full 1099-C should be taken into account on her return that she would be insolvent -- the question would then be insolvent by how much compared to the amount of the 1099-C's.

Questions:
Is the 1099-C income reportable on her return? If so, how, since the IRS won't match up the 1099-C (his SSN) with her 1040?

Bill

[taxdude71]

Hi Bill. Had a few of these this year. The 1099C should be reissued under the estates EIN (if there is one) and in most cases would not be taxed. I had another preparer tell me that the IRS really doesn't care about these cases and he's fixed them by sending them in with a letter explaining the situation.

Anyway you look at it, there should be no tax due.

[Bill Tubbs]

taxdude

I appreciate your comments, but I was hoping to get something a bit more definitive. Anyone else?

Bill

[Burke]

Tax Almanac kicked this around a while back, you can probably find it. There were some comments about community property states and their particular laws about debts passing to the spouse. Since I do not live or practice in one, I can't help you there. But otherwise, unless the debt was secured by the property which passed to her, or she co-signed the obligation, etc. it is not her debt. The creditors would have had to make a proper claim against the estate in order to be paid, and apparently they just wrote it off, hence the 1099-C. See other recent thread titled " Estate Final K-1."

[Bill Tubbs]

lawyer

The client (the widow) needed to talk with the lawyer that had helped her through the cancellation of that debt, so I printed off the response I got from the IRS when I posted this question on the IRS site. The lawyer responded that the 1099-C would not be taxable on her return. I have no idea how much that lawyer understands tax law, but hopefully he/she understands community property and estate issues enough. Well, if the IRS does question her, it's now the lawyer's opinion and not mine!

Bill