1099-C

[Max W]

Client has an S-Corp and received a 1099-C with the EIN number and name of the S-corp..  Her husband, who died 3 years ago, had taken out a loan on a credit card and it is noted on the 1099 that he was personally responsible for the defaulted loan.  

The taxpayer took over the operation of the S-corp when her husband died.

What is the best way to handle this?

TIA

[Lee B]

If this was a debt of the corporation, it seems like the S Corp would have been receiving statements and collection notices which it should have paid.

Therefore the 1099 C would be the responsibility of the S Corp.

[Max W]

On 3/3/2025 at 11:03 AM, Lee B said:

If this was a debt of the corporation, it seems like the S Corp would have been receiving statements and collection notices which it should have paid.

Therefore the 1099 C would be the responsibility of the S Corp.

The 1099 specifically states that it is a personal liability.   I know from having been in retail business, banks don't make loans to small corps without the owner being personally responsible even if the loan was made to the corp.     If it is taken on the 1040, the tax can be deferred by reducing the basis of the owner's home.

[Pacun]

Other income.

Unless, the S corporation was insolvent one day before the date on the 1099-C. Insolvency in this case might be very hard to prove, especially if S corp has equipment or money in the bank.

[jklcpa]

Tax Advisor article on COD income in pass through entities, effect on tax attributes, and basis adjustments. It does also have a subheading specific to S Corp handling, but read it all.

https://www.thetaxadviser.com/issues/2015/may/tax-clinic-06.html

[Lee B]

8 hours ago, Max W said:

The 1099 specifically states that it is a personal liability.  

Then why does the 1099 C have the name and EIN of the S Corp?

On 3/3/2025 at 10:55 AM, Max W said:

Client has an S-Corp and received a 1099-C with the EIN number and name of the S-corp..

Why didn't the S Corp pay the liability?

8 hours ago, Max W said:

  If it is taken on the 1040, the tax can be deferred by reducing the basis of the owner's home.

It sounds like you have already decided what you want to do?

[Max W]

7 hours ago, Lee B said:

1. Then why does the 1099 C have the name and EIN of the S Corp?

2. Why didn't the S Corp pay the liability?

3. It sounds like you have already decided what you want to do?

1. I think that the bank made a mistake.  It should have been under the deceased spouse's SSN as he was the personal guarantor of the loan as specifically stated on the 1099-C.

2. I have no idea.  I was never aware of it.

3. No. I am trying to decide what to do.  Based on the facts and circumstances, and because it took place in CA, a community prop. state, the surviving spouse is liable for loan.