1099-C

[AsAl36]

My ex husband filed all the debt on 1099-C because he was responsible for the debt in our divorce but now the IRS is trying to collect from me and my spouse even though my ex and his wife filed for the entire debt. Are we still responsible to file if he claimed it all?

[tagteam]

I will page @Mike9241. Please check back later.

[Mike9241]

whose Social Security Number was on the 1099-C and what type of debt?  Are you sure they reported it (it may not matter see last sentence)?

You would have to contact the iRS to find out why they sent you the bill. 

please note that divorce courts cannot change the income tax laws. if it was your debt even though the other party reported it, the IRS has every right to include the debt in your income. 

Call 800-829-1040
1) Choose your language,
2) Then choose option 2
3) Then 1
4) Then 3
5) Then 2
6) When it asks you to enter your SSN or EIN do nothing – wait - - After it asks twice, you will get another menu
7) Then 2
😎 Then 3

It should then transfer you to an agent. Note when its phone line are busy you may be on hold for a long while or disconnected

[Opus 17]

If you filed joint returns during the marriage, both spouses are jointly and severally liable for any shortfall, error or fraud.  That means the IRS can come after both spouses for the shortfall, or only the spouse with more money, or however they want to.  

You can file to request "innocent spouse" relief. This would include an argument that you didn't know about the error or fraud because it was hidden from you, or an argument that you should be partially responsible but not wholly responsible ("equitable relief").  The IRS is not bound by or required to follow the divorce order but they can include it as a factor in their evaluation.

(Don't get innocent spouse and injured spouse confused.  Innocent spouse relief is when you are being held responsible for taxes due on joint returns from during the marriage, and you must be divorced at least 6 months before you can request innocent spouse relief.  Injured spouse is for when a spouse wants to be protected from tax debts owed by the other spouse from before the marriage.)

The innocent spouse relief form can be filed as part of your tax return (if you expect an offset will happen) or it can be filed as a separate claim after you discover that your refund was offset or when you receive an assessment.

See here for more.

https://www.irs.gov/individuals/innocent-spouse-relief

[rjs]

@Opus 17 

This has nothing to do with responsibility for a joint return, so innocent spouse relief does not apply (nor would injured spouse relief apply).

As I understand it, a 1099-C (Cancellation of Debt) was issued by a lender. Apparently the 1099-C was issued to the OP, but she has not confirmed that. The divorce decree says that the ex-husband is responsible for the debt that was later canceled. Both the OP and her ex take that to mean that he is responsible for paying the income tax on the canceled debt. He reported the canceled debt on his tax return and paid the tax on it. The OP feels that that should settle the matter. But since the 1099-C was issued to the OP, not to her ex, the IRS does not connect the canceled debt reported on the ex-husband's tax return with the 1099-C issued to the OP, so the IRS is saying that the OP has to report the income from the cancellation of debt.

As a matter of tax law, the OP is in fact responsible for reporting the canceled debt from the 1099-C that was issued to her, no matter what the divorce decree says. Note that the issue is the tax on the canceled debt, not the payment of the debt itself.

This looks like a typical case of the divorce lawyers and judge not understanding the tax law, or perhaps they did not anticipate that the debt might be canceled, so they did not address that possibility.

What I think the OP and her ex might be able to do to satisfy the IRS is for the OP to pay the tax, and her ex-husband reimburse her for the tax. Then he could file an amended return removing the cancellation of debt income that he reported unnecessarily, to get a refund of the tax that he paid. @Mike9241, would that work?

[AsAl36]

Once we were divorced I was unable to even look at anything through the National Debt Relief Consolidation. Even though there were 2 cards only in my name. But the debt that's on the 1099-C was a card in both of our names and he was the main account holder on it. They said I was sent a 1099-C and did not file it but I have not actually received one. I'm guessing it went to an old address. My ex husband and his wife received theirs and filed the entire amount. They sent me a copy yesterday that shows they paid taxes on the entire debt. Do I have to pay taxes on the entire debt as well? It does not make a lot of since that the IRS is getting double paid because we are divorced because if we were still married we'd be filing it once but jointly. From what I was told recently if it's my situation that we would each file half the amount but he filed the entire forgiven debt amount.

[Opus 17]

@AsAl36 

Start by getting your wage and income transcript from the IRS, that will list the 1099-C as one of your sources of income, if it was issued with your SSN.

https://www.irs.gov/individuals/get-transcript

The instructions for the 1099-C say that if two people are jointly liable for a debt, two 1099-Cs must be issued, unless the debtors are married, living at the same address, and their circumstances have not changed.

For debts of $10,000 or more incurred after 1994 that involve debtors who are jointly and severally liable for the debt, you must report the entire amount of the canceled debt on each debtor's Form 1099-C. Multiple debtors are jointly and severally liable for a debt if there is no clear and convincing evidence to the contrary. If it can be shown that joint and several liability does not exist, a Form 1099-C is required for each debtor for whom you canceled a debt of $600 or more...

If you know or have reason to know that the multiple debtors were husband and wife who were living at the same address when the debt was incurred, and you have no information that these circumstances have changed, you may file only one Form 1099-C.

https://www.irs.gov/instructions/i1099ac

So it is possible that both spouses were issued 1099-C forms for the same debt.  You would not be able to verify that without your spouse's cooperation.

The same canceled debt should not be taxable income twice.  The problem is reporting this.  I can't find any instructions in the usual places on what to do in this situation.  Example 3 on page 6 of publication 4681, which explains how to handle canceled debts, clearly shows a post-divorce example where both spouses receive a 1099-C for the full amount, but agree to split the debt based on what it was used for.  However, the IRS doesn't say how each individual spouse is supposed to document that the amount reported as canceled debt is different than the amount on the 1099-C.

https://www.irs.gov/forms-pubs/about-publication-4681

Because you have a copy of your ex's tax return showing they declared and paid tax on the income, I think your response at this point should be to write a letter of explanation to the office that sent the notice (the notice should have an address).  Include a copy of your ex's tax return showing the income, and include a copy of your divorce agreement showing their agreement to be responsible (you only need to attach a copy of the cover page, the page that talks about the debt, and the signature page, the IRS doesn't need the rest.). In your letter of explanation you can state that since your ex agreed to be responsible, and did in fact pay the tax, and the same income can't be taxed twice, that you don't owe any tax. 

Your original problem is caused by not reporting the 1099-C on your return, but the IRS instructions don't explain how to report the 1099-C in the situation where the other ex-spouse has agreed to pay the tax, so I'm not sure what you would have done originally to prevent this.

[Mike9241]

Your original problem is caused by not reporting the 1099-C on your return, but the IRS instructions don't explain how to report the 1099-C in the situation where the other ex-spouse has agreed to pay the tax, so I'm not sure what you would have done originally to prevent this.

I can offer a suggestion but don't know how the IRS would view this. report the 1099-C

and then as a negative adjustment on the other income schedule enter "less debt cancellation above reported by ex-spouse XXX-XX-XXXX. (or similar wording with their SSN)

[Opus 17]

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@Mike9241 wrote:

I can offer a suggestion but don't know how the IRS would view this. report the 1099-C

and then as a negative adjustment on the other income schedule enter "less debt cancellation above reported by ex-spouse XXX-XX-XXXX. (or similar wording with their SSN)

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Possibly.  However, it's too late for that here, and the taxpayer needs to answer the letter.  I would not advise this taxpayer filing an amended return to report the debt in the manner you suggest.  (Prior to the invention of e-filing, the IRS advice when a 1099 was not taxable, was to leave it off the return and attach a copy of the 1099 and a letter of explanation to the tax return when it was mailed in, but that doesn't work with e-filing.)