1099-c received after death

Forum|Forum|4 years ago
March 22, 2022
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My father passed away in January 2020, and my mother filed a final joint tax return for 2020. She no longer has any income (other than social security) and is not required to file a tax return for 2021.

Before my father passed away, my parents placed most of their assets in a joint living trust. The only assets that were not placed in the trust were a business checking account (which was attached to a sole proprietorship that was owned in my father's name only) and 2 cars (both more than 20 years old).

The sole proprietorship was a small auto repair shop that was closed soon after my father passed away. No probate or estate tax return was needed. My parents have only resided in California.

Wells Fargo sent a letter that they were going to file a 1099-C for forgiven business debt (about $51,000) in my father's name and social security number for the date of 12/31/2021. We have not received an official 1099-C form yet, only a statement. (We anticipate another 1099-C from Bank of America for other forgiven business debt, possibly in 2022; we are working with BofA to close the business checking account still. No funds have been distributed to my mother from the BofA business checking account yet.)

When I asked several accountants, one CPA said that we should file a 1041 for my father's estate along with a 982 for insolvency. Another CPA said that my mother may need to file another joint tax return because she is responsible for my father's cancelled debt since my parents resided in California, a community property state. However, the cancelled debt was issued after the final joint tax return was filed last year.

What should we do? I have reached out to a tax attorney but they are too busy to respond since it is tax season. We are getting anxious because the April 15 deadline is fast approaching.

I understand from other posts here that the 1041 and 982 forms seem to be the correct response to a deceased person's 1099-C. Is this something fairly simple that we can do using Turbo Tax?

We would greatly appreciate anyone's help!

Not A Product Question

JillS56

Yes. the Form 1041 and Form 982 can be prepared in TurboTax. Form 1041 can be prepared in TurboTax using the Business version. Form 982

(Reduction of Tax Attributes Due to Discharge of Indebtedness) reports the amount of cancelled debt to excluded from taxable income. TurboTax will automatically generate Form 982 if your canceled debt is for a qualified principal residence indebtedness, aka mortgage debt relief.

However, based on my research since your father passed away in January 2020 your mother cannot file a joint return for 2021. Therefore, there is not a return to add the income unless there is an estate opened. If there was no estate or probate opened or the estate was closed, then there is nothing you can add it to. If you want to be cautious you can put "deceased " on it and send to the IRS with a letter or you can address it later if they contact you over it.

NOTE: If you are on the 1099-C as a joint recipient of the canceled debt, you need to include it on your return.

Form 1041

Form 982

DExt2021Author

Thank you so very much for replying!!

No probate or estate was opened because almost all of the assets passed through the trust to my mother. The only asset still unresolved is a business checking account with about $4000.

We still have not even received an official 1099-C form regarding the Wells Fargo debt. All we received was a statement/letter that they were going to create and file one with the IRS. Moreover, the letter was addressed only to my father and his social security number.

Thanks to your research, if we don't have to file anything, it would be a huge relief!

But, would the IRS really contact us about it later on? My concern is if we receive the official 1099-C after April 15 and it is still dated for 12/31/2021, would that get us in trouble? What if we never receive a 1099-C from Wells Fargo?

Thank you again!

JillS56

No, it is unlikely that they would come after you for it. Since there is no return being filed under his social security number in 2021 and the 2020 tax return his date of death was reported. Your father has no filing requirement for 2021 since he passed away in 2020. There is nowhere to report the 1099-C.

If you never receive a 1099-C from Wells Fargo, there is nothing to be concerned about.

My suggestion would be if you receive the 1099-C, put it with a copy of the death certificate, and if you receive any communication from the IRS concerning the 1099-C, then respond to the letter with a copy of the death certificate.