Cancellation of Debt - Deceased Spouse

[TAXNJ]

Any reference in THE TAXBOOK on how to handle Cancellation of Debt - Deceased Spouse? Would it be income for the Surviving Taxpayer

Background:

2012
Spouse deceased

2013

Surviving Taxpayer receives 2013 Form 1099-C Cancellation of Debt in deceased Spouse name and TIN#

Date of identifiable event May 2013 (however Spouse deceased in 2012)

Debt Description: Credit Cards and Loans

Debtor: Deceased Spouse was personally liable for repayment of the debt

Identifiable Event Code: E - Debt relief from Probate or Similar Proceeding

Thanks in advance

[ChEAr$]

Well, did you find any reference in the Taxbook (tm)?

[TAXNJ]

No. any other sources?

No, but can you cite any pages in THE TAXBOOK or any government sources you recommend that address the specific situation listed above?

Just trying to find documentation support.

[ChEAr$]

Well, just think about it for a minute. Yesterday a client brought in 3 of these forms for her deceased husband. Same year's involved as in your query.

Her deceased husband had nothing in 2012 year of death but the clothes on his back and a car totaled by his fatal accident. She was administrator of the estate, and used any net pay due him from employer to pay funeral bills. She by law is not responsible for his separate debts, so there is no problem. You cant file a 2013 1040 for a decedent you know.

IRS computers may add the three up but then take no action.

[TAXNJ]

She by law is not responsible for his separate debts, so there is no problem.

Well, just think about it for a minute. Yesterday a client brought in 3 of these forms for her deceased husband. Same year's involved as in your query.

Her deceased husband had nothing in 2012 year of death but the clothes on his back and a car totaled by his fatal accident. She was administrator of the estate, and used any net pay due him from employer to pay funeral bills. She by law is not responsible for his separate debts, so there is no problem. You cant file a 2013 1040 for a decedent you know.

IRS computers may add the three up but then take no action.

Your reply makes common sense and I try to apply it to the code and still have an issue.

Can you let me know where in the code I can find when you say "She by law is not responsible for his separate debts, so there is no problem." This may be the support that I am looking for.

[mscash]

Cancelled Debt

The taxpayer is single in 2013 and was not the recipient of the COD income. I would leave it off. Since the estate was insolvent it would be excludable there too.

[DonB]

Can you let me know where in the code I can find when you say "She by law is not responsible for his separate debts, so there is no problem." This may be the support that I am looking for.

You are not going to find any such wording in the code-- Look for what IS taxable income and you will not find income belonging to another person. Consult a attorney for the "by law".


Of life's two certainties, there is only one for which you can get an automatic extension. ~Author Unknown

[Harvey Lucas]

To avoid IRS correspondence, would it be helpfull to file a 2013 1040 along with a 982 showing that the cancelled debt was not taxable because of insolvency?

And/or, assuming you had to file a 1041 for the deceased persons estate, would you file a 982 to exclude the COD income on the 1041?

I have a similar case..

Thanks,
Harvey Lucas

[Burke]

You cannot file a 2013 form 1040 for a person deceased in 2012. IF the estate were still open, it would be reported on 1041 and may be taxable. If it is closed, and assets are non-existent, then there is nothing to file there either. These forms are often received way after the fact and may be ignored. It will not match to the SSN of the deceased.

[TAXNJ]

Thanks to all for the responses

Especially the responses from Burke, H. Lucas and MSCash regarding the taxpayer is single in 2013 and was not the recipient of the COD income, the form 1041, etc. I think will lead to researching in the supporting areas needed.

[JON]

???

There is such a thing as a bankrupt estate?? You file it as such?? Listing the debts, debts forgiven and insolvent - if he becomes solvent by the forgiveness you mnay have a tax problem to the extent any of his estate's assets were used for other things.

[Koss]

Deceased in 2012

I agree with the previous observations that the surviving spouse has a filing status of single, and thus it is inappropriate to report the COD income on her return. I also agree that a 2013 Form 1040 cannot be filed for the decedent if he died in 2012.

The COD income, in theory, would certainly have to be reported on Form 1041. And the estate could well be insolvent.

But there may not be any estate to speak of. If the taxpayer died without any meaningful assets, I'm not sure I would want to file a 1041 just to deal with the 1099-C. I don't know that I would want anyone to take on the burden of the role of executor or personal representative.

The IRS database knows that the taxpayer is deceased.

That won't necessarily prevent a notice from going out. But the surviving spouse may not be obligated to respond to such a notice if it does not have her name on it.

I know someone whose mother died many years ago. There was no spouse, and there were no assets except clothing, furniture and personal effects. There was no will, and there were no probate proceedings. In the year of her death, her income was minimal, and the guy concluded that Form 1040 did not have to be filed.

For some reason, letters started coming from the IRS. I think maybe the decedent had never filed a tax return for the year before her death. But her son didn't know for sure, and he didn't think he was legally responsible.

The woman's son did the same thing with the IRS letters that he did with the medical bills and credit card bills.

Her marked the envelope DECEASED - RETURN TO SENDER, and gave it back to the post office.

The letters stopped coming after about a year.

If there is a real estate and an executor or administrator, then obviously you can't do this. But when someone dies penniless, there may not be anyone who is legally obligated to respond to IRS correspondence.

BMK

[TAXNJ]

Jon and Koss

Yes the COD of $900 may be an issue for the surviving spouse if:

Still owns the home that was jointly owned

Has wages and social security