My mother passed from COVID and she owned two taxi medallions in NYC in the name of a corporation. I received two 1099-C’s in the name of the corporation for her loan on the medallions. The 1099-C’s have “ the debtor was personally liable for repayment of debt” The estate only has $2k in the estate account, the corporations has $5k. The only assets are the medallions which there are no buyers for at this time . Would the corporation or the estate be responsible for the tax’s due on which is now considered income, which is $13k? Could this be excused by the IRS as both entities would be insolvent?
If a Form 1099-C Cancellation of Debt for canceled debt is issued to an S Corporation, the income inclusion (or exclusion) is applied at the corporate level. If applicable, the corporation would then file Form 982 Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) with their tax return to report any tax attribute reductions.
Any taxable portion of the canceled debt income, after Section 108 exclusion, is passed on to the shareholders and would need to be included on each shareholder's tax return. This would be reported to the shareholders on Schedule K-1 (Form 1120-S) Shareholder’s Share of Income, Deductions, Credits, etc., Line 10 as Other income. Any information relating to the deferral or exclusion of income can be reported on Schedule K-1 (Form 1120-S), Line 17 as Other information.
if a C corporation it's even simpler because no income is passed out to the shareholder.