1099-c

[S T]

1099-C form received in deceased spouse name and social security number for 2005. DOD 11/2004

Surviving spouse will be filing single for 2005. Do we need to include the 1099-C on her tax return?

Sandy

[WhiteOleander]

I would report the 1099C income on the 1041 decedent's return. It would not go to the spouse's 1040 for 2005.

[S T]

Agreed

But the decedent doesn't have to file a form 1041. Community property state, however, the surviving spouse was not on this account, appears to be either a credit card or a line of credit through MBNA, listed as pers/business loan.

Sandy

[Black Bart]

Makes you wonder

if surviving spouse has to do anything. Did responsibility end with last return ('04) that was filed as MFJ ? I'd been curious about other cases like this before too -- involving different types of taxable income. I wonder if there's a statutory length of time that a surviving spouse is responsible for taking care of the tax matters of a deceased spouse?

[S T]

That is my concern

Community property state, all passes to surviving spouse. But I have also heard that if the spouse is not on the credit card/line of credit then they are not liable for the debt. Seen this in a few divorce issues. The banks try when it is to their advantage as far as extending credit lines, but then I am guessing the reverse should be true on death claims.

Due to the death in 11/04, all passed to spouse and no creditor claims, no form 1041 (under the $ amount). Obviously MBNA felt they couldn't collect from the surviving spouse and that is why a 1099-C was issued, so I guess no statutory length of time to wait. MBNA just wanted off their books as uncollectable. Surviving spouse apparently did not sign any "binding" contract with the Bank/Credit Card organization.

So does it need to be reported on the surviving spouse return in 2005? It is $17,000+, she could probably absorb it due to some other deductions, but?

Hope someone else will jump in on this discussion!

Sandy

[Black Bart]

I just don't know.

Maybe you-know-who does.

[S T]

Maybe

Maybe Bees,Armando, Old Jack, Sea Tax, Bob W, Snags, or a few others will post Mon AM. Sorry if I didn't mention your name, you are not intentionally being excluded.

Goes along with my S Corp Basis and Stock post as well. All the same client. I am working an S Corp, a C Corp, and 2 individual returns. All have to be delivered by Wed.

Ugh! Too many questions and not enough answers!

Sandy

[jainen]

>>Bees,Armando, Old Jack, Sea Tax, Bob W, Snags<<

First of all, let me go on record with the unethical position of doing nothing, unless the client (after being fully informed) is more virtuous and wishes to pay what she owes.

There are two reasons why she is responsible for the tax on debt relief. #1. Regardless of who was "on" the account, either spouse's debts arising during marriage are a liability against community property. In other words, it was also HER debt all along, and the discharge is HER income.

#2. The beneficiary of a decedent's estate is subject to all the debts of and potential claims against the decedent. In other words, she inherited the debt along with the house and car. The 1099-C was issued in the wrong Social Security number, but that doesn't mean she isn't liable. It just means she won't get caught.

[Black Bart]

Ethics

aside, you're saying she owes the tax (pay it or not). Okay for the tax, but what about the debt itself. If MBNA had not cancelled it and, assuming she was willing to pay it, would she be legally obligated to pay it?

[S T]

Why I posing the Question

It is possible in California, Community Property State , that some debts do not become the other spouse's debt.

It is my understanding that if the other spouse is not signed on the account, they are not liable, likewise nor can they use the credit card, credit line, etc.

So Calif does seem to recognize a separate credit for each of the spouses. i.e, each spouse can have their own credit line independently of the other, or they can have joint credit where both are legally liable for the debt.

Now if you inquire about your credit history in Calif, you often find separate credit reports just in "one" spouse's name not relating to the other spouse.

I do recognize the fact that the surviving spouse is usually liable for any debts, taxes, settling an estate of a deceased spouse, however, as posted earlier, MBNA issued strictly in the "deceased spouse name and Social security #" Seems like the 1099-c was issued, as MBNA knew they could not collect because of no tie to the surviving spouse.

I also recollect that the issuer of the 1099-C needs to issue so they can take the write off on their Accounting as a Bad Debt.

If that is the case, then why would the surviving spouse have to report the cancellation on "her" tax return.

I am inquiring to report the tax return of the surviving spouse correctly, not skirting any income issues. But at the same time do not want to report something on her return if it is not required.

Sandy

[Black Bart]

I wouldn't look

a gift horse in the mouth. If it was okay with MBNA, it would be okay with me.

[jainen]

the bank is giving you money

>>Calif does seem to recognize a separate credit for each of the spouses<<

Credit means the bank is giving you money. It's different when the time comes to pay it back! There are various reasons why a bank wouldn't bother, but technically they can enforce collection against any community property. That's not exactly the same as the spouse being personally liable, but depending on how much money is involved it's pretty close. Anyway, this is obviously one of those times when the bank isn't going to bother.

But suppose the old credit card was from before they were married, and the bank put her SSN on the 1099-C. You wouldn't say then, "Oh, we have to use whatever number is on the form." Forms can be wrong. You are supposed to go with what actually happens. Supposed to.

[Black Bart]

Mobile Truth

True, true. The ball rolls either way, so this calls for an application of "situational ethics," which is: who needs the money worse -- my client or MBNA?

I know, of course, that that's a cynical and slighty dishonest view, but good grief, guys; you know how much trouble it is to get a big company to change a 1099, no matter whose ox is gored. It just ain't worth the time and trouble to do it, not to mention there's no gratitude or money coming to you for it. I admit a true ethicist would do it if he could, but that's just further than I'm willing to go even if virtue is its own reward.

[S T]

I already acknowledge

J-

I think

I already acknowledged in the prior post that we (myself and taxpayer) wanted to report correctly. I was requesting "guidance" !

I am simply asking the proper procedure based on the information available. Not trying to skirt any tax issues. Even tho Calif is a Community Property State, either spouse can have "separate" liabilities and assets. Now whether that debt actually is owed by the "Community" I am not sure!

I don't know about you, but I have seen this before, just different scenario. Example, Son died, and 3 years later the bank issued a 1099-C for cancellation of debt. Was minimal like less than $2,000. A little late in reporting, for sure! What are the parents to do, file a return, acknowledge. tax consequence possibly on the 1041 form (but there was no estate), no will, nothing, the parents aren't liable for the debt? No they weren't on the note. The bank/credit card establishment just had to remove it from their "books"

I just haven't received one on a deceased spouse that was not in both spouses names. Yes, normally both parties are on the loan, but this one is not a "joint account". So what to do?

Sandy

[Black Bart]

Guess he's already

hit the sack. Think I'll do the same. The old gray man ain't what he used to be.

Come to think of it, if you decide t/p should pay, there's no point in trying to the 1099 changed. You could just list it on line 21 and it would go right on through (never known IRS to question an undocumented income item. Goodnight.