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Student Loan Debt discharged due to disability 1099C

Technical topics regarding tax preparation.
#1
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I was recently contacted about a 2012 tax return.
It was prepared and filed by a local CPA within the last couple years.
During 2012 husband filed bankruptcy, and wife was pronounced disabled.
Wife's student loans were subsequently wiped due to the disability, and 1099C was/were issued. (First I have heard of this.)
Apparently they ignored the situation for a period of time before eventually filing once hounded by the feds.
They were trying to do a penalty abatement this summer and had not heard back from the IRS, so they called me to see if I could help. I believe the delay is all Covid related, but once I heard the details of the case I was kind of surprised they would not have qualified for an exclusion, presumably based on the insolvency.
The other CPA is on the older side, and took well over a month to get back to the client when I told them to ask about it.
He claims they would not qualify for any exclusion.
I am thinking about taking up the case and asked for all documents related to the bankruptcy, and student loan discharge of debt.

Perhaps there is something I am missing about this? I told them I'm not an expert in 1099C, but I could research it further.
Has anyone dealt with a 1099C for student debt? In my limited research so far I haven't found anything that disallows this type of debt for insolvency calculations.
 

#2
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Student loan indebtedness. If student loan indebtedness is discharged after 2017 on account of the student’s death or disability, the discharged debt may not have to be included in income. See Student loan cancellation , later, for more information.
Pub4681
 

#3
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#4
dave829  
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#5
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Don't see this helping the taxpayers' 2012 tax return.

See sec. 108(f)(5) Discharges on account of death or disability
(A) In general In the case of an individual, gross income does not include any amount which (but for this subsection) would be includible in gross income for such taxable year by reasons of the discharge (in whole or in part) of any loan described in subparagraph (B) after December 31, 2017, and before January 1, 2026 ...


When was the 2012 tax return filed?
Was all COD income included on the original filing or did the IRS adjust the account?
Is there still a balance due or has all of the tax been paid?
 

#6
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Updates.
It was the 2014 tax return, and tax was paid in 2019.
I don't think they will qualify for disabled, based on the Trump tax law change, but I would have to assume, depending on the timing of the bankruptcy, that they would be at least a little insolvent?
(I usually believe that most people live paycheck to paycheck, until proven otherwise.)
Currently awaiting agreement to retainer request before I pass along the financial information worksheet.

If the 1099C has an identifiable date prior to bankruptcy I would think that would help the case for insolvency, but we won't know until I get them to provide all of the information.

Accountant who did the original return wants nothing to do with revisiting this case, and it might turn out that the tax was paid much earlier, and only the penalty and interest was paid in the last 2 years. Have to wait and see.
I've already invested far too much time in this for getting no money.
 


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