INNOCENT SPOUSE RELIEF

Technical topics regarding tax preparation.
#1
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Location:
new jersey
Client filed joint return for 2018. Earlier that year, the wife passed away from a viral infection. Immediately thereafter, the husband contacted all known banks and credit card companies to advise them of his wife's death and cancel any cards that were solely in her name or jointly in both names. This included a Discover Card that had an outstanding balance of $16,000. That was the last and only contact the husband had with Discover until the IRS sent him a notice asking for $3,500 because of unreported income from a Form 1099-C Cancellation of Debt. The Form 1099-C is in the deceased wife's name and social security number only.

Is the husband eligible for Innocent Spouse relief per Form 8857? Prior to his wife's death, the husband worked for Homeland Security and spent considerable time overseas in the Middle East. Because of the dangerous work environment and absences from home, the husband was very unfamiliar with the day-to-day family bills and mail and even provided his wife with a Power of Attorney because of the work situation. It appears that all of the credit card transactions were legitimate purchases for the wife and the the two teenage girls. The husband was unaware of any of this until the IRS Notice was received. There was never any correspondence from Discover concerning the status of the debt, the cancellation of debt, or the fact that there would be reportable taxable income from the cancellation of the credit card debt.

Does the Innocent Spouse Relief apply here?
 

#2
Doug M  
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Any chance that the spouse could be eligible for insolvency? The question would be if the husband knew (when he contacted Discover) that there was a balance owing on the account.

https://www.irs.gov/businesses/small-bu ... use-relief

The above link is the IRS summary as to who qualifies for relief
 

#3
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35
Joined:
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Location:
new jersey
1. No, the husband cannot claim insolvency.
2. The husband had no clue that this Discover Card account existed until he received Discover's periodic statement a month or two after his wife passed. That's when he called to cancel the card. There was no discussion about the $16,000 card and the husband apparently incorrectly thought that the balance was reduced to zero because of his wife's passing. The card was in her name only. It wasn't until the 1099-C was received in January 2019, for tax year 2018, that the husband became aware of the debt cancellation income.
 

#4
CathysTaxes  
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