[WSBAPT] Creditor Claim/Discharge and Forgiveness of Indebtedness Income

[Nicholas Pleasants]

Hello Listmates,
I am having some issues with decedents receiving 1099-C for Forgiveness of Indebtedness Income. Here are two scenarios:

  1.  PR gave notice to decedent's credit card company, CC company files claim, we dispute some of the charges and agree to pay 85% of the claimed amount. CC Company provides a release of claim and subsequently issues a 1099-C for 15% of the claimed amount.
  2.  PR gave notice to decedent's credit card company, 4 months pass without a claim being filed, CC company files a 1099-C for some arbitrary amount that may or may not be what the date of death balance of the credit card was. Does the Estate have to pay income tax on this forgiven debt that was never properly presented for payment?
We believe this is contradictory to the precedent of Preslar v. Commr., 167 F.3d 1323, 1327 (10th Cir. 1999), that a disputed unliquidated debt may not result in a 1099 being issued. Cf. Earnshaw v. Commr., 63 TCM 2353 - undisputed liquidated debt that is settled results in a 1099 for the reduction amount. I now have numerous probates with these facts and I am hoping someone out there has experience dealing with this. It appears that we could be conservative and file a Form 1041 return and pay taxes on the forgiven amounts, but in these cases it may not be necessary. Thanks in advance for any help.

Best,
Nick

P.S. I still am looking for a citation that banks cannot charge interest on credit cards after they are notified of the decedent's passing.

Nicholas Pleasants
James Pleasants, P.C.
2300 130th Ave NE, Suite A-101
Bellevue, WA 98005-1755
(425) 615-7070 tel.
(425) 497-0799 fax
nick at pleasantslaw.com<mailto:nick at pleasantslaw.com>
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