Expert: Regan Shinski - 3/17/2010

Question
My deceased husband racked up some $70K in unsecured credit card debt on credit cards taken out in his sole name. I'm unable to pay that debt and collection company's are talking about issuing 1099 C on the debt forgiven. They all talk about CA being a community property state.

Am I responsible to pay the taxes on such 1099 C's? He died in Sept '09 and I haven't received any 1099 c's in the mail yet - when do they have to be received in order to count against 2009 taxes? If don't arrive in time for 2009, do I have to pay on the 2010 tax return?

Answer
Hi Sally:

California is a community property state.  Much like you hear of famous celebrities having to pay half of their earnings to a divorced spouse, half of the debts can transfer as well although it is usually more complicated.  It depends on when they were taken out and under what circumstances.

If they were to issue a 1099 for 2009, it would have had to be issued by January 31, 2010.  I suppose there is a small concern they issued it and you didn't get it.  you could contact the IRS to see if one was issued.  Some people may say that could "alert" the IRS to the issue, so you may want to be vague.  It seems reasonable they could issue a 1099 in 2010.  If so, it would have to be received by January 31, 2011.  I only say "reasonable" because the accounts may not have been officially closed out in the 3-4 months at the end of 2009.

If it issued, you should seek tax advice.  One consideration is filing separately.  Tax laws also provide various one-time benefits for surviving spouses in the tax year of spouse passes, so I really think you should seek tax advice for 2009 returns.  I don't know, but you may be able to list off the debt on the 2009 return whether or not you receive a 1099.  You really should seek GOOD estate/tax advice before filing.

Good luck and sorry for your loss.  Although a serious issue, I do not think this is troublesome enough for you to really worry if proper advice is sought.

Regan