Forgiveness of Medical Debt and 1099-C Issues

[JohnH]

Interesting article for spare-time reading:

http://www.forbes.com/sites/anthonynitti/2016/06/06/john-oliver-buys-and-forgives-15-million-in-medical-debt-but-is-the-forgiveness-taxable/?ss=taxes#7f89131929a6

[Catherine]

Really interesting; thank you!

[Gail in Virginia]

The article was so interesting that I actually watched the video.  Wow. 

[JohnH]

I was fascinated by the reasoning and the apparent IRS position on this.  I've never run across a 1099-C for cancellation of medical expenses, but if I had I would not have not come to this conclusion.  I would have assumed that the excludable portion of the forgiven debt under Section 108 would only have been the tax-deductible amount after the 10%/7.5% haircut, and then probably only if the client itemized.  I would have been totally off base on several levels.

[SaraEA]

My Masters program was a law course.  We studied countless Tax Court and Supreme Court cases.  After reading the initial summary of facts, you'd see right away that the defendant was guilty or innocent, could or absolutely could not do whatever s/he did.  Then you'd read the case and reasoning, including things like the "intent of congress" and "plain language" definitions and the ruling was opposite of what you'd expect.  You sure realized how many moving parts there are to a simple code section.  The biggest lesson I learned is that I have so much yet to learn.

In anything tax related, we're best off sticking with the "it depends" response rather than jumping to any conclusion.  We already do this when a client wants to know how much their return will cost before we've looked at the paperwork, or wants to know how much they'll owe or get back before we've entered a single number.

[JohnH]

Great point.  When people pose a tax question to me, I usually tell them that if a tax preparer answers with anything but "Well, it depends...", then the tax preparer probably misunderstood their question.

[Richcpaman]

That is why debt *never* goes away.  He bought it at .004 on the dollar.  It was a gift to whoever he bought it from.

How did he forgive the debt?  Did he send a letter to all the debtors stating that as of June 1st, 2016 the following debts would no longer be collected and removed from your record? Did he send something to the local courthouses clearing the lien, if any?

Its a nice publicity stunt. But is reality, what did he really do?

Rich

 

 

 

[RitaB]

On ‎6‎/‎8‎/‎2016 at 1:23 PM, JohnH said:

I was fascinated by the reasoning and the apparent IRS position on this.  I've never run across a 1099-C for cancellation of medical expenses, but if I had I would not have not come to this conclusion.  I would have assumed that the excludable portion of the forgiven debt under Section 108 would only have been the tax-deductible amount after the 10%/7.5% haircut, and then probably only if the client itemized.  I would have been totally off base on several levels.

Me, too!  Now that we're talking about it, I've never seen a 1099-C for cancellation of medical expenses, either, and I hear of our hospital writing off medical expenses for my clients frequently.  I'm wondering what the difference is between free shoes and free medical care.  Unless it's because we all just know that a Tylenol doesn't cost $40 (pssshhh), and the providers were shooting at the moon...