A client who moved into OK in 2011 had Oklahoma Wages an IRA Rollover and a Pension Premature Distribution and Cancellation of Debt Income in 2012. He moved out of OK back to Florida in 2012. The debt in question was from a Florida mortgage on a house that was under water when he moved to OK so he simply let the bank have it back. There was also some Florida credit card debt. All was discharged in Chapter eleven bankruptcy so it can be excluded from Federal but what about OK? An agent at OKDOR said that to her knowledge there is not even a way to report cancellation of debt on an OK return but she was quick to point out that I can't rely on her to avoid penalties if she's wrong. Anyone know if she is right or wrong and if she's wrong how this gets reported?
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Oklahoma is one of those states that starts with federal AGI, then applies subtractions and additions to arrive at OK taxable income. So since they start with federal AGI, and the debt is excluded from federal AGI under the bankruptcy rules, then it does not appear on the OK tax return, unless it is included in an addition.
Looking at the list of additions on page OK-3 in TTB All States Edition, I see nothing for having to add back federally excluded cancellation of debt income. Perhaps that is why an OK Department of Revenue agent doesn’t think there is any way to report it on the OK return because it is not listed in any of the additions to OK taxable income.
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