Cancellation of Debt

[S T]

Question -

I have a client that received a 2013 Cancellation of Debt on a Discover Credit Card.

Not an issue as he was insolvent on his own accounts per the Insolvency Worksheet. We did this as well in 2011 tax filing

Here is the twist - Married in 2013 and will be filing a joint return for 2013- Community Property State - however, both the Client and the Spouse have maintained separate accounts.

Can I still use the Client's insolvency - just on his accounts and complete form 982, or do I have to recognize both the Client's accounts and the New Spouse for the Insolvency?

Not prepared one for this scenario before.

Thanks for any thoughts and/or guidance

Sandy

[DonB]

I don't know about the community property question, but it might be moot if the COD occurred before the marriage.

[S T]

Unfortunately the statement was issued after the marriage - Date 12/31/2013 marriage date was July 2013

however, they are not comingling funds or so far as I know took on any of each others debt.

It is one of those "timing issues" when the Credit card Co decided to finally get around to marking it "uncollectible" and issued the 1099-C - We knew about it in 2012 when filing 2011 taxes - but here we are now in 2014 filing 2013 taxes.

Any thoughts??

Sandy

[Maribeth]

I would take the position that the debt was his separate property. Therefore the cancellation of that debt was income only to him as there was no comingling by the marital community of this debt.

If the spouse paid anything on that debt before it was forgiven, then it would be a joint debt.

[S T]

Thanks Maribeth for your insight

Took me a few days to have questions answered and also receive an Insolvency Worksheet from the T/P that received the 1099C

No Co-mingling of funds and/or debts - all separate with the taxpayer and the "new" spouse, and they are advising me that they will NOT be co-mingling any bank accounts or debts.

Guess I will "go for it" on the 2013 Tax Return.

Again, thanks so much

Sandy

[AZ-Tax]

Insolvency worksheet include personal residence?

Insolvency worksheet suppose to include personal residence?