Cancellation of Debt

[cbesaw]

A friend of mine got a 1099C in her husband's name from a credit card. Her husband died in October 2010. She said they filed bankruptcy in May of 2010. She called the 800 number on the notice and they said it was the result of the settlement of the bankruptcy. She says she doesn't have to claim it on her tax return because her husband is dead. I think she has to because they filed joint tax returns in the past. Which is it? The 1099c is dated 1/3/2012. It is for her 2012 tax return but it is in his name.

[Questionguy101]

As far as I know, the ONLY way to get a relieve is to prove that the taxpayer was insolvent at the time the debt was forgiven. I cannot think of any other ways. The taxpayer being dead is not a valid reason, in my opinion.

[ddoshan]

If the credit card was just in her husbands name I would not think she would or should be responsible for.

[Lion]

Was it discharged in the bankruptcy? Then no problem.

Certainly the husband is not solvent. He's dead. He doesn't own anything, does he? So with this CC debt, he would be insolvent, right?

[cbesaw]

Was it discharged in the bankruptcy? Then no problem.

Certainly the husband is not solvent. He's dead. He doesn't own anything, does he? So with this CC debt, he would be insolvent, right?

Dear Lion
She does not know if it was discharged with the bankruptcy. He died in 2010 and the 1099c is dated 1/3/12 and is in his name.

[AZ-Tax]

Was she insolvent?

Dear Lion
She does not know if it was discharged with the bankruptcy. He died in 2010 and the 1099c is dated 1/3/12 and is in his name.

cbesaw, was she insolvent on 1/2/2012? If so maybe a form 942 (I think that is the correct form) might help

[Y2KEA]

How much?

How much is stated on the 1099C? Is it even material?

[mactoolsix]

IRS Information on 1099-C

A debt is deemed canceled on the date an identifiable event occurs or, if earlier, the date of the actual discharge if you choose to file Form 1099-C for the year of cancellation. For 2012, all codes are optional except for Code A—Bankruptcy. An identifiable event is one of the following.

1. A discharge in bankruptcy under Title 11 of the U.S. Code. For information on certain discharges in bankruptcy not required to be reported, see Exceptions, later. Enter “A” in Box 6 to report this identifiable event.

(lists a total of nine)

http://www.irs.gov/instructions/i1099ac/ar02.html

So look at the 1099-C. If it has Code A. we always enter it Misc Income with a reversal for the bankruptcy amount. This produces a statement showing how the 1099-C was handled.
Mike

[Gary2]

A friend of mine got a 1099C in her husband's name from a credit card. Her husband died in October 2010. She said they filed bankruptcy in May of 2010. She called the 800 number on the notice and they said it was the result of the settlement of the bankruptcy. She says she doesn't have to claim it on her tax return because her husband is dead. I think she has to because they filed joint tax returns in the past. Which is it? The 1099c is dated 1/3/2012. It is for her 2012 tax return but it is in his name.

If it's in his name, what makes you think it's for her tax return? Whose SSN is on it?

With the exception of some communiy property states, or transfers to avoid creditos, one spouse generally isn't liable for the other spouse's debts. Without the liability for the debt, there's no debt to cancel.

Creditors are notoriously poor at getting these out in a timely manner. If the debt can be shown to be canceled in bankruptcy, then the 1099 is invalid; the only trick is proving that to the IRS.

[Burke]

I agree. If it is in her husband's name and his SSN, forget it. He's no longer filing a tax return and she is not responsible for reporting it on hers. The CC company has written it off and is no longer attempting to collect the debt. If her name was on the card, or if they had the legal wherewithal to go after another person, they would have done it. They could have filed a claim against his estate, but they did not. Now it is too late and its a done deal.

[John of PA]

The executor of the husbands estate is responsible for any tax liability re: this 1099-C. It no executor was named, then his wife is automatic executor by state law, but she can disclaim by filing in court. It appears to me there is no tax liability becasue of the bankruptcy insolvency, but such must be filed and disclosed.

[John of PA]

I don't the the amount of money involved, but it may be simpler to just file a 1041, take what deductions you can, and be done with it. If there were legal fees, you may have a good deduction there.