[WSBAPT] 1099-C Cancellation of Debt

Wed Jan 25 10:04:05 PST 2023

You may want to look at Carl T. Miller Trust v. Commissioner, 76 TC 191 (1981). The court held the estate realized income under 61(a)(11) from the discharge of indebtedness in the year in which the state’s nonclaim statute barred the payment of the debt owed by the decedent at death. Arriving at its decision, the court noted that under state law the claims were forever barred against the estate because the creditor failed to file a claim within the specified time, and that the estate could not waive the bar.

Hope this helps!

Jared

Jared E. Adams, JD, LL.M.

Condie & Adams, PLLC
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From: wsbapt-bounces at lists.wsbarppt.com <wsbapt-bounces at lists.wsbarppt.com> On Behalf Of cyfield at rockisland.com
Sent: Wednesday, January 25, 2023 9:42 AM
To: 'WSBA Probate & Trust Listserv' <wsbapt at lists.wsbarppt.com>
Subject: Re: [WSBAPT] 1099-C Cancellation of Debt

We just filed a Declaration of Completion in a modest probate case where credit card company compromised a few thousand $s of debt after a two minute phone call . Given we weren’t sure if we’d face some sort of cancellation of debt issue, I recommended PR hold back some $ as permitted to deal with the potential tax liability just to be safe.  Client was happy debt was compromised but I could see in some situations it might not be worth the hassle.

Cyrus W. Field, Attorney at Law (admitted in Washington and Oregon); Phone: 360-472-1223
Mail: POB 367, Shaw Island, WA 98286; Physical Office:  640 Mullis St #214, Friday Harbor, WA
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From: wsbapt-bounces at lists.wsbarppt.com <wsbapt-bounces at lists.wsbarppt.com> On Behalf Of Jerimy Kirschner
Sent: Tuesday, January 24, 2023 4:20 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com>
Subject: Re: [WSBAPT] 1099-C Cancellation of Debt

I believe that the debt is cancelled upon the earlier of an identifiable event or the date the 1099-C is filed. One identifiable event listed in the IRS 1099-C instructions is "[a] cancellation or extinguishment making the debt unenforceable under a probate or similar proceeding."  If a creditor claims is cut off in probate after notice, then I would venture that is the moment the debt is cancelled. For most, this would occur prior to distribution.

On Tue, Jan 24, 2023 at 4:02 PM Diane J. Kiepe <DJKiepe at depdslaw.com<mailto:DJKiepe at depdslaw.com>> wrote:
So I think there a couple legal arguments that I would feel comfortable making.  The first was already discussed, that is there was no debt because WF had no legal right to the money claimed owed.  Second, I could, with a straight face, argue that one of the Section 108 exclusions apply – Code Section 108(a)(1)(B) states that there is no income if the taxpayer was insolvent when the discharge occurred.  Clearly taxpayer was insolvent if he/his estate had distributed and closed and owned nothing but the full $$$ of the WF 1099C.

I can tell you that I personally experienced one in my own life for a significantly larger amount (long story) and I did not report it and never heard from the service – this was during 2009.

Diane J. Kiepe

Diane J. Kiepe
Douglas Eden
717 W. Sprague Ave.
Suite 1500
Spokane, WA  99201
djkiepe at depdslaw.com<mailto:djkiepe at depdslaw.com>
509-455-5300

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 3:48 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com<mailto: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

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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
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Seattle, WA 98109
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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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