1099-c

[jainen]

balances transferred

>>you forgot to take your "nice" pill again<<

Come on, Sandy, I've been nice (at least on this board) ever since I took Bart's pledge (except when the author of the pledge invited me to "confront" DaveO). I'm being extra-nice on this particular thread, even to the risk of my immortal soul. Ain't it the truth, Bart?

Sure there can be non-community property in California. I had an example of some in my last post, demonstrating what a consistent approach to this slippery problem might entail. Your scenario with the son is different because it's not community property. But the parents ARE legally liable for the debts to the extent of any assets inherited. A lawyer would probably argue it differently; I don't know. I'm not a lawyer so I wouldn't give her a legal opinion.

But I think the widow was at least morally liable for the credit card if she inherited the property, and legally too so she owes tax on the cancellation. If my spouse died I would pay her bills. But if my client's spouse died I wouldn't be so certain. The moral question is none of my business. I just do the tax return, and there's a reasonable range between being conservative and being aggressive in tax positions. I support them all. It's up to the client to decide where she stands.

Here's a couple of new issues. If the widow was the executor or personal representative, she is legally obligated to file any tax returns that may be due and pay the taxes out of the estate. If the estate has already been distributed, she is personally liable for the taxes. Since there was a 1099, it is conceivable that the IRS may inquire.

If she sent a check to MBNA it would cause a big mess. The bank has already taken a bad debt deduction for it and now their only interest in the widow is to issue her a new credit card with low interest for six months on balances transferred.

[S T]

Sorry

You got to my post before I changed it. I had a change of heart, because you have been really nice, just sometimes exasperating! So I deleted my first sentence!

Here's a couple of new issues. If the widow was the executor or personal representative, she is legally obligated to file any tax returns that may be due and pay the taxes out of the estate. If the estate has already been distributed, she is personally liable for the taxes. Since there was a 1099, it is conceivable that the IRS may inquire.

I am somewhat familiar with the Calif Probate code and how that all works, so because the 1099-C was issued, even tho in the deceased husbands name and ssn # only created a concern. Other documents that carried reporting requirements from 2004 to 2005 had both names and ssn #'s.

It is also a concern as I believe that this "credit card/line of credit" was used for a business under a C Corp, (stock transferred to the surviving spouse). However, it is in the deceased's name individually. Very confusing!

In this particular taxpayer's situation I do not see on the surface a "tax liability issue" as there are plenty of writeoffs and not much income. More for future knowledge! But then one never knows do they?

S

[sea-tax]

Shutter to say I agree with my California Neighbor, Jainen. I would have the wife claim the 1099c. I think the arguement would be that she got some benefit from the debt incurred. This is similar in my mind as say Sch C income. When you are married you can't tell me that you didn't not get some inherent benefit from the money . Harsh yes but I think the way it needs to be reported.

But hey if the client is willing to take the risk and willing to pay any penalties then maybe do what our Southern Gentalmen is saying. I would have the client sign something saying she understands the ramifications of that action though.

[jainen]

Don't mention it

>>Shutter to say I agree with my California Neighbor, Jainen<<

Don't mention it. No really, don't. From my first post I said I would NOT expect the widow to pay tax on this. I've been trying so hard to be nice guy and live up to the pledge and all, but I guess my rep will dog me for a while longer.

By the way, I would never "have the client sign something saying she understands the ramifications." If I don't think it's a supportable position then I don't put it on the return. I only ask for three signatures--the engagement letter, Form 8879, and a check payable to myself.

[DaveO]

What was the debt used for?

If it was for a business it might not be income anyway. I wouldn't claim it without knowing exactly what the debt was for and if she derived any benefit from it. I would much rather have the fight (with the IRS) as to why it wasn't on the return than to put it on the return and attempt to exclude it.

[Bees Knees]

You keep saying there is no estate and no 1041. A 1041 is required whenever gross income is $600 or more for the tax year. A 1099-C issued in the name of a decedent is gross income to the decedent's estate.

The 1099-C does not go on the survivor's return because the survivor did not receive the income. The decedent received the income (cancelled debt). Therefore, the decedent must file a 1041.

Now, who then pays the tax on the 1041?

Well, you don't have to do an income distribution deduction on a K-1 to the survivor, because nothing was distributed. You could say the benefit of the cancelled debt was distributed to the survivor, but I have never seen that required in any 1041 instructions. The survivor could also disinherit the decedent's estate, being off the hook for any debt or taxes owed by the decedent. But then that means any assets owned by the decedent prior to death and inherited by the survivor would also have to be disinherited.

I think the legal way to handle this is to do a 1041, distribute the income to the survivor on a K-1, and have the survivor pay tax. Sorry, but a 1099-C is not going to escape IRS notice. However you look at it, the survivor is responsible for all TAX debts of the decedent, unless the survivor disinherits the decedent's estate. It has nothing to do with who was liable for the credit card debt. We are talking tax law here, and the decedent is liable for tax on the 1099-C. If the decedent doesn’t pay the tax, then IRS goes after those who got the decedent’s assets.

[fliszt]

Sandy, I have been through similar situations several times but not in CA. In fact if you will recall, my parents 1040, 1041 estate and trust were rather involved. I have had many discussions with IRS and attorney in these situations. If you would like to phone me I will be glad to share with you. (952) 431-6677
Larry M.

[Black Bart]

Absolutely.

>>you forgot to take your "nice" pill again<<

Come on, Sandy, I've been nice (at least on this board) ever since I took Bart's pledge (except when the author of the pledge invited me to "confront" DaveO). I'm being extra-nice on this particular thread, even to the risk of my immortal soul. Ain't it the truth, Bart?

I must say that I've never seen such a complete character transformation in such an astoundingly short time. Is it possible for one to be canonized (declared a saint) before death?

I'm certain that this message will eventually be inscribed on your Santa Cruz stone:

Green be the turf o'er thee, friend of my better days. None knew thee but to love thee, nor named thee but to praise. --- F. G. Halleck (1790-1867)

[veritas]

Very nice BB.

What will this generation have to quote?

Probably Larry the cable guy.

[S T]

Not too harsh

BB,

We need to lighten up a little, J- has been trying really hard, I know you and the others do enjoy his posts and conversations, altho, like I said, sometimes it is exasperating! He is very knowledgeable, so we don't want to chase him away.

Sandy

[S T]

Thank you, thank you

Bees, Thank you so much for your post.

My brain is just "mush". This client just has me jumping through hoops, what with a closing of C Corp, a new S Corp, 2 shareholder returns, and the 1099C on the deceased husband. Every direction I turn there is a new "issue" that "pops up". C Corp never had a fiscal year extension filed, S Corp extension we just barely made that, along with the 2 shareholders personal returns. Old accountant quit in the middle, the accounting for C Corp and S corp which are a "nightmare". So you can just imagine where I am.

Thank you, thank you for finally defining what needs to be filed. I got all wrapped up in the community and debt issue and was not looking at the responsibilities of the estate. When suggested a form 1041, I do believe I was thinking form 706 in my brain, so I just did not process that this was IRD, and I do know better!

What you suggest would make perfect sense. So now, I have the 1099C issued in decedent name,and decedent ssn#, and also a 1099 INT in decedent name with spouse, but decedent ssn#. So if my head is halfway back on my neck correctly, on the form 1041 I should report the 1099-C cancellation of debt and the 1099 INT earned on the form 1041 which will flow through to the spouse's form 1040 via K-1. Sound correct???

Next question for you would be, DOD of decendent is 11/04, obviously in this mess no extensions have been filed, no EIN# obtained, etc. I need to obtain an EIN# so would it be adviseable for fiscal or calendar year. Due to pass through on the K-1 there won't be any tax liability on the 1041, but just in case.

Sandy

[Black Bart]

Tripping the light fantastic

BB,

We need to lighten up a little, J- has been trying really hard, I know you and the others do enjoy his posts and conversations, altho, like I said, sometimes it is exasperating! He is very knowledgeable, so we don't want to chase him away.

Sandy

But I have lightened up. I haven't found him to be exasperating at all. Indeed, he's been the soul of sensitivity lately. Although I may have somewhat overstated the case about sainthood (a bit much, I admit), it's obvious from his recent string of opening statements ("Thank you" -- "just my opinion" -- "your experience may be different" -- "don't mention it") that he's a changed man. I earnestly applaud and support this noble tilt toward the tranquil.

If he'll give up blood transfusions, I know a snake-handler who may be able to help get him into the local branch of Heavenly Holyrollers via correspondence course. Once there, the transformation will be complete (you cain't do anything) and he (and we) will live happily ever after.

He had no failings which were not owing to a noble cause --- Edmund Burke

[Bees Knees]

Next question for you would be, DOD of decendent is 11/04, obviously in this mess no extensions have been filed, no EIN# obtained, etc. I need to obtain an EIN# so would it be adviseable for fiscal or calendar year. Due to pass through on the K-1 there won't be any tax liability on the 1041, but just in case.

Since the estate has yet to file any tax returns, you can elect whatever fiscal year works out best. Probably the least number of returns. I guess even if the first year has zeros, you would want to file an initial return with the estate EIN just to get it in the system, and then a final return for the year the income is passed through on the K-1. Since there is no tax liability on the 1041, there shouldn't be any late filing penalties. Remember that for a fiscal year K-1, you report the K-1 on the 1040 for the tax year the K-1 fiscal year ends. So if it is fiscal year end 11/30/2005, you report that K-1 on a 2005 calendar year 1040.

[Black Bart]

Good point, Veritas

What will this generation have to quote?

Probably Larry the cable guy.

I just looked him up on the Net. I've seen him while clicking through the channels, but never actually watched his show. I was set back a bit, as I had no idea how far they'd taken that "redneck" routine. I thought my jokes were a tad risque on occasion, but they're absolutely "quaint" compared to the stuff that's on there. Some of his stuff is really funny, but quite a bit of it also strikes me as crude and disgusting.

[S T]

Agreed

On the Comedy Channel here in Calif, and he is usually part of another group with 3 other guys. Funny, but very crude and rude most of the time.

Sandy