Form 982

[Christian]

A couple for whom I have worked for many years received a cancelled debt form from a bank credit card which was issued in the husband's name only. He passed on in November last year and in discussing the cancelled debt with the administrator I was told the husband had no substantial assets as he owned basically his personal clothing, items of personal furniture, and an old Lincoln automobile. The total value of these being perhaps $2,000. The couple's home was transferred into the wife's name some three or more years ago. The couple's home was sold with her being indicated as sole owner. I am considering filing their return using Form 982 attached which will eliminate any tax due from the debt cancellation. In thinking it over it occurred to me the IRS might regard the residence as still an asset allocatable in part to him thus requiring the addition of the cancelled debt to their mfj return even though the property was given to the wife some years back. The cancelled debt is some $17,000 and as this is one of those once in a blue moon tax problems for me I would appreciate any input form any of you who are more familiar with using Form 982.

 

 

[Lynn EA USTCP in Louisiana]

Have you considered filing MFS to separate the husbamd's income and assets from the wife's?  Are you in a community property state, which might complicate this tactic? 

 

[Gail in Virginia]

I don't know the rules for community property states, but if I follow the sequence of events correctly, the wife could file as single since the husband passed on in November and therefore she was not married on the last day of the year.  She and the executor could elect for her to file jointly with her deceased husband, and I think  that he would have to file either MFJ or MFS, but she should have the option to file either MFJ or S.

 

[rfassett]

I am assuming that the cancellation of debt took place prior to husband's passing so that would show up on his final 1040.  Your proposed use of 982 seems to be that you are building a case that he was insolvent at the time.  The fact that he owed $17,000 and only had $2,000 of asset should prove that.  The community state issue is very important to this set of facts.  MFS would probably be the best way to go (again, assuming lack of community property rules).  Be sure you have your facts documented.  It sounds like their was a stripping of assets out of the husband's name for some reason.  Be sure there were no joint bank accounts or other money accounts that might end up queering the insolvency issue.  Talk is cheap.  Ask the administrator for a copy of the estate or inheritance tax return is one exists.

Those are my rambling thoughts on this beautiful Friday morning!

[Christian]

In Virginia he would  have owned 50% of their home but he gave his half to her some years back. So she actually owned the home for a time. He also had some $1000 in a joint account. My fear was that the  IRS might have some obscure rule which might require the inclusion of the $17000 in their return despite his having transferred his interest to his wife years back. Although it rarely has happened I have  tripped over some obscure IRS rule from time to time..