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Raytay

TaxAlmanac

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Deceased Spouse Cancellation of Debt

See original discussion at http://www.taxalmanac.org/index.php/Discussion:Deceased_Spouse_Cancellation_of_Debt


I have a taxpayer (Husband) that died in 2010 who had a personal credit card that the surviving spouse (Wife) refused to pay. The credit card company issued a 1099-C for the amount of the Husbands debt under his Social Security number. This all happened in 2010 and the wife will be filing a joint return.

Does she get relief from reporting the COD in 2010 since it forgiven after his date of death and it was only under his name?

Thanks I know you're all busy out there.

( Asked 04/04/11 05:44 PM in TaxAlmanacViews by community 36 )

Answers (14)  

DaveFogel

TaxAlmanac

If the credit card debt was canceled after the husband's death, then it should be dealt with on Form 1041 for the estate. This has been discussed in (http://www.taxalmanac.org/index.php/discussion:_COD_income_from_estate_%281041%29)

( Answered 04/04/11 06:26 PM in TaxAlmanac ,Views by community 36 )

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Raytay

TaxAlmanac

I saw that discussion but it doesn't necessarily apply in my situation since it is not going through an estate and this was a recourse debt.

( Answered 04/04/11 09:18 PM in TaxAlmanac ,Views by community 36 )

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DaveFogel

TaxAlmanac

"it is not going through an estate" Huh?

Someone else care to explain this to Raytay?

( Answered 04/04/11 10:48 PM in TaxAlmanac ,Views by community 36 )

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Dennis

TaxAlmanac

Not really that simple. Debts of the decedent do not automatically become debts of the decedent's estate. If not acknowledged, there is a procedure dependent on state law for submission of claims. Is a 1099C valid if there is no debt?

( Answered 04/05/11 12:03 AM in TaxAlmanac ,Views by community 36 )

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Doug M

TaxAlmanac

I am confused, as I had this with my own partner. The debt is forgiven due to death, therefore not income on the 1040. Taxpayers tax year ended on DOD, therefore debt forgiveness cannot be included as income on 1040.

My next logical assumption is 1041. 1041 is either solvent or insolvent. Due the same work you would do for a 1040 to determine solvency.

So, Dennis, this is my dumb question. How do you not acknowledge debt, if in fact it is a debt of the decedent?

What am I missing?

( Answered 04/05/11 12:20 AM in TaxAlmanac ,Views by community 36 )

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Dennis

TaxAlmanac

Why is it in fact a debt of the decedent? Because the credit card company says so? It is the Executor's responsibility to decide. In New York a disputed debt is listed so in Surrogate's Court filings and it is up to the alleged creditor to follow procedure to establish. Most states have similar laws, precluding distribution of estate assets until the claim period has passed. Basic Case -- Credit card company says decedent owed money. Executor says prove it. Credit card company doesn't bother, but issues 1099C. Is there a debt? No claim against the estate, no cancellation of debt as far as the estate is concerned.

( Answered 04/05/11 01:04 AM in TaxAlmanac ,Views by community 36 )

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Ckenefick

TaxAlmanac

Exactly. If the creditor is charging off the debt, he wouldn't bother with the hassle and expense of pursuing anything in court.

( Answered 04/05/11 01:18 AM in TaxAlmanac ,Views by community 36 )

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Doug M

TaxAlmanac

Don't agree with you Chris. In any short sale, a creditor is "charging off the debt". That does not mean there is no COD.

Dennis-never said anything to that issue. I think many times it is pretty simple. H had CC debt in his name. Nobody disagrees to that issue. Attorney sends letter to creditors as to the bleakness of decedents assets. CC company decides not to pursue claim against estate.

Estate files inventory of decedent. Included in this is CC debt. Executor states via the inventory that it is a debt of the decedent. This is why it is in fact a debt of the decedent.

( Answered 04/05/11 08:41 AM in TaxAlmanac ,Views by community 36 )

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Dennis

TaxAlmanac

Nobody disagrees to that issue. Executor states via the inventory that it is a debt of the decedent. As opposed to Executor disagrees and states via the inventory that this is a disputed claim? That is what the acknowledgment process is all about. Note that we are not helping poor Raytay, here. My point is only that if there is no valid claim against the estate there can be no cancellation of debt income.

( Answered 04/05/11 01:13 PM in TaxAlmanac ,Views by community 36 )

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Raytay

TaxAlmanac

There is no insolvency or hardship in this case. The Credit Card debt and a few minor debts where in his name only. All of their other assets are in a living trust and since credit cards are only issued to individuals it would be the only asset in an estate. Essentially the discussion above concludes that a surviving spouse would not have any COD for the credit card debt of their deceased spouse when the surviving spouse refuses to pay. Again the 1099-C was issued under his social security number since it was under his name but more then likely these funds were used for community expenses.

( Answered 04/05/11 03:04 PM in TaxAlmanac ,Views by community 36 )

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Ckenefick

TaxAlmanac

DougM, Dennis is absolutely right on this. Estate comes into being when someone passes. Estate makes notification in local newspaper "Here ye, Here ye, all creditors come forward and submit your claims within x numbers of days pursuant to state/local law." If a creditor doesn't come forward, there's no claim against the estate to begin with. And I'm talking about claims in general.

Also, there can be a short sale without a debt being charged off. I've seen it. Bank says, "Okay go sell the property for less than the debt." Seller believes this is an invitation by the bank to charge off the debt. Maybe, if that's what their agreement is or if seller is required to under state anti-deficiency laws. But maybe not if seller agreed to nothing of the sort.

( Answered 04/05/11 06:27 PM in TaxAlmanac ,Views by community 36 )

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Doug M

TaxAlmanac

Chris--my understanding of this beyond beginning level. And I still respectively disagree. Raytay was looking to the 1040. Debt is not being disputed. Raytay states there is a creditor. They have come forward. They issued a 1099-C.

short sale without a debt being charged off Huh?

If there was no debt being charged off, there would be no short sale.

( Answered 04/05/11 06:32 PM in TaxAlmanac ,Views by community 36 )

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Dennis

TaxAlmanac

Please note that my response was to Dave, not Ray. In Ray's case surviving spouse is filing a joint tax return with a husband whose tax year ended before the alleged debt was canceled so the question of inclusion is whether she had any liability.

( Answered 04/05/11 07:05 PM in TaxAlmanac ,Views by community 36 )

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Ckenefick

TaxAlmanac

Right. And my comments were "general" about whether or not a debt belongs to an estate or not. Honestly, I didn't read the OP too closely.

Also, maybe it's just semantics that we're getting hung up on with the short sale...I use the phrase "short sale" to describe any situation where a property is sold for less than the balance on the mortgage and the lender agrees to release the lien on the property. So, if the lender sues the borrower for the deficiency, it's still a short sale in my mind - it's just a type of short sale that involves no forgiveness by the lender. Not sure what else this type of sale would be called other than a "standard sale."

( Answered 04/05/11 07:40 PM in TaxAlmanac ,Views by community 36 )

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