[WSBAPT] 1099-C Cancellation of Debt
Claudia A Gowan
claudia at cagowanlaw.com
Tue Jan 24 16:25:01 PST 2023
Brent, the problem you have is that you will probably be asked to give advice to your client. I agree with you, a failure to file penalty and interest is something to consider.
I might start by telling my former PR client, who has personal liability for the taxes, that you really don’t know.
But that it seems like there are several options:
1. File a return – probably a 1041 for the Estate – and declare the income for 2022. Attach a statement regarding the $ 627 to the effect that the debt is non-collectible due to failure to file a creditor claim and the statutory bar that is in place on collecting the claim. Therefore it is not income at all (you might want to research this a little bit, I am talking off the top of my head, which I know we should never do).
* Problem is your client no longer has authority to sign a return so you might have to have letters reissued.
* I don’t know if the non-collectibility argument would fly cuz I have not researched it.
* Since no 1041s have been filed, e.g. estate had no income, it might be a first and final return. Any argument that the debt forgiveness is not income at all & that Wells Fargo did not file a claim might be well received (after all how much would the IRS really collect on this?)
* Since no returns were filed – neither a final 1040 or a 1041 – there is no way to amend a return and the bad timing of the debt being forgiven in 2022 doesn’t really work for you.
2. While I tend to think a 1041 would be better, your client could also file a 1040 for 2022 with a similar statement; a, b and c, above still apply.
3. Ignore the 1099.
* Problems: PR has personal liability and penalties and interest could apply.
* At the very least, PR may well incur attorney/accounting fees just submitting the return and defending against any assessment by the IRS.
i. Unless the beneficiaries are all reasonable, it could be hard for PR to get reimbursed.
1. Tell your client that he or she could call the IRS, pick a time that they can simply keep the speaker open until an agent picks up, and raise the question with them (probably only to be referred to another department to repeat the whole procedure…)
2. Advise your PR that you are not a tax attorney and that you can’t really advise on this issue, but that you are aware that it would probably be a good idea to consult with somebody who can.
So, in a nutshell, the best you can do is let your client know that this is a unique issue and outside your purview, give your client some options to consider and direct him or her to a tax specialist, or, perhaps someone on this list or another whom your client consulted would come up with other and better options. The net result is that you would have given your client the best advice that you can under the circumstances.
Don’t you just HATE these kind of issues??? $ 27 over the filing requirement (that is being said knowing that one should file anyway if there is ‘income’ – even if doesn’t meet the filing level requirement)
Best, Claudia
Claudia A. Gowan
Claudia A. Gowan, PLLC
2212 Queen Anne Avenue No., # 338 (Mailing only)
Seattle, WA 98109
(206) 443-2733 (T)
claudia at cagowanlaw.com<mailto:claudia at cagowanlaw.com>
www.seattletrustsandestates.com<http://www.seattletrustsandestates.com/>
From: wsbapt-bounces at lists.wsbarppt.com <wsbapt-bounces at lists.wsbarppt.com> On Behalf Of Brent Williams-Ruth
Sent: Tuesday, January 24, 2023 3:48 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com>
Subject: Re: [WSBAPT] 1099-C Cancellation of Debt
This was a low income estate, there was no earned income during the administration and the Executor did not file an income tax return on the advice and counsel of a tax professional. (I make it clear that I am NOT a tax attorney and do not give tax advice.....just enough knowledge to be dangerous). But even if they did, the tax year was 2021.
I worry that by simply being ignored this could turn into a failure to file, and lead to interest and penalties and problems for the former PR - though it was sent to the Decedent's name (not his estate) care of me (personally) at my office address - not the Law Offices of Brent Williams-Ruth. Bob Q. Smith, in care of Brent Williams-Ruth.
Brent Williams-Ruth (pronouns: he/him)
Attorney-At-Law
Law Offices of Brent Williams-Ruth, a division of BWR Consulting, PLLC
Physical Address: 500 S 336th Street, Suite 214; Federal Way, WA 98003
**EFFECTIVE IMMEDIATELY** All mail sent through the USPS should be sent to the following address: PO BOX 3319; Federal Way, WA 98063
Office/Scheduling Phone: (253) 285-7751
Direct: (253) 285-7453
e-mail<mailto:Brent at Williams-RuthLaw.com> / website<http://www.williams-ruthlaw.com/> / facebook<http://www.facebook.com/bwrlaw> /
On Tue, Jan 24, 2023 at 2:38 PM Claudia A Gowan <claudia at cagowanlaw.com<mailto:claudia at cagowanlaw.com>> wrote:
Brent, did the estate file a final form 1040 for the decedent?
This is such a pain because technically, if Wells Fargo sent the 1099 to the IRS, the decedent had income in that amount – which is over the required amount for filing an income tax return amount. But the estate is long closed and the form 1040, if one was filed, has probably long since been processed. Plus of course, the debt was discharged in a year well after death, which raises another series of questions about any filing requirement, e.g. if you were to file a tax return for the 627.00, for whom would it be filed, the estate for the calendar year of the discharged debt or would it be for the decedent who incurred the debt (all when the PR has already been discharged)?
And of course, the PR is not going to want to file anything…
Excuse my ramblings but I would be scratching my head over what to do on this one.
Best, Claudia
Claudia A. Gowan
Claudia A. Gowan, PLLC
2212 Queen Anne Avenue No., # 338 (Mailing only)
Seattle, WA 98109
(206) 443-2733 (T)
claudia at cagowanlaw.com<mailto:claudia at cagowanlaw.com>
www.seattletrustsandestates.com<http://www.seattletrustsandestates.com/>
From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> <wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com>> On Behalf Of Brent Williams-Ruth
Sent: Tuesday, January 24, 2023 2:08 PM
To: WSBA Probate & Trust Listserv <WSBAPT at lists.wsbarppt.com<mailto:WSBAPT at lists.wsbarppt.com>>
Subject: [WSBAPT] 1099-C Cancellation of Debt
Mighty Brain Trust -
Today I received a 1099-C for the cancellation of debt from a Wells Fargo credit card.
This debt was never presented as a creditor claim. The amount is $627.47.
The estate closed under regular process - Decl of Completion - on January 20, 2022. The creditor period expired on August 14, 2021.
Other than providing this information to the former Executor - I am open to guidance as to how to respond. It was reported as discharged on July 2, 2022. More than a year and a half after death.
Thank you.
Brent Williams-Ruth (pronouns: he/him)
Attorney-At-Law
Law Offices of Brent Williams-Ruth, a division of BWR Consulting, PLLC
Physical Address: 500 S 336th Street, Suite 214; Federal Way, WA 98003
**EFFECTIVE IMMEDIATELY** All mail sent through the USPS should be sent to the following address: PO BOX 3319; Federal Way, WA 98063
Office/Scheduling Phone: (253) 285-7751
Direct: (253) 285-7453
e-mail<mailto:Brent at Williams-RuthLaw.com> / website<http://www.williams-ruthlaw.com/> / facebook<http://www.facebook.com/bwrlaw> /
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