Cancelled debt question

[jjstephens]

Client had a heart attack last year. The hospital forgave a $60k debt. Does it have to be claimed as income?

[superman]

Yes

if the hospital provides a 1099-c then it needs to be claimed.

[glgillis]

Not Required

Hospitals are not required to file 1099C's, and I doubt that one was in this case. In addition, under the Hill-Burton Act, hospitals receiving Federal funds are required to provide a certain amount of free service, ie write off the debt. Anything is possible, but I have never seen any hospital or medical service provider issue anything.

"Junior Member" Gosh, at my age being considered junior anything is a thrill!!

Gerald

[George Boutwell]

if the hospital provides a 1099-c then it needs to be claimed.

More than 90% of debt cancellations reported on Forms 1099-C are NOT NOT NOT taxable because the debtor was either insolvent or bankrupt.

[jjstephens]

Thanks for your input

Thanks to all who replied. I appreciate your insights.

The hospital did not (and was not required to) provide a 1099C. Qualifying cancelled debt has to be claimed even if it is not reported on a 1099C. I'm still unclear if this qualifies. As for the client's solvency, that is debatable. He was semi-unemployed at the time. How can you be semi-unemployed? Great question. He had been laid off more than a year earlier from his job as an electriction and, due primarily to his age, has not been able to find another job. He has been free-lancing while continuing to job hunt but he went from $60k to about $10k in 2005 and $11k last year. His wife runs an at-home daycare. They've been surviving on savings and the largesse of friends. Sounds an awful lot like insolvency to me but I guess I need to do some research to see if our friends at the IRS agree with me.

[George Boutwell]

Insolvency

Insolvency has to do with assets and liabilities, not income or semi-unemployment.

The hospital probably did not "write off" the debt. They probably agreed to charge him what Medicare or a major insurance company would have paid them for the same services. It's only the poor and uninsured who are billed the suggested retail price for medical services.

[S T]

I think

I think George is correct, your client does need to report this at all.

To try to explain simply, the bill from the hospital might have been $100,000, and they billed "whatever insurance company, medicare, supplemental, etc") Insurance company paid $40,000 according to their contract with the hospital. The $60,000 that the hospital does not received is NOT a bad debt to the t/p and the t/p does NOT acknowledge on their tax return.

It is a contractual agreement between the hospital and the insurance provider.

Sandy

[glgillis]

I agree

with George and ST. i.e., I had a procedure at our local hospital in January. Total bill was over 8k. They accepted 1800 from Medicare and my suppplement and "adjusted" the balance. Do I owe tax on the "write off"? Of course not! Can you imagine the uproar from the media and politicians If the IRS tried to tax people on free or subsidized medical care? Ain't gonna happen.













george