Disabled Person with 1099C

[S T]

I have a son of one of my clients, that is on SSDI, and received a cancellation of debt from US Dept of Education.

As he has no reportable income, obviously would be insolvent - should we file a 2013 tax return reporting the 1099C with Form 982?

1099C is for $ 10,000.

Thanks

Sandy

[DaveinTexas]

Not trying to be smart but

A shortage of income wouldn't necessarily mean the TP is insolvent. I use the Insolvency Worksheet from TaxTools (pretty handy), have the client fill it in and sign it.

If the Liabilities are greater than the Assets (to the extent of the COD) you just may be in business.

File the Form 982, be sure to reduce the basis of the TP's non depreciable assets (most likely) and tell the TP to wait about 18 to 22 months for a CP2000 because the IRS will disregard the Form 982, even though you played by the rules.

When the CP2000 arrives, instruct the client to send the Insolvency Worksheet along with a written explanation. ALSO, be sure to charge the client for work you are performing because the job isn't done when the return is filed.

Try to stay sane this season!

[S T]

Hi DaveinTexas

You are being smart, just not be a Smart "A", so thanks for your post!
Another one of those scenarios that I have not had the pleasure of encountering, and the first item I thought of was the CP2000 notice.

Son is in a Mental Group Home - no assets - liability is of course the cancellation of debt, so completing the 4681 is prety easy.

Thanks, we will file!

Sandy

[tpnl]

Is he a dependent of someone else?

If not a dependent of someone else, is there any taxable income with just the SSID and cancellation of debt? If there is no tax liability, I would just file without the Form 982. Then you don't have to deal with a CP2000 later.