I avoid these questions because my intuitive answer is usually not the right answer.  What IRS will tell you (Pub 550) is

Insolvency of contractor. You can take a bad debt deduction for the amount you deposit with a contractor if the contractor becomes insolvent and you are unable to recover your deposit. If the deposit is for work unrelated to your trade or business, it is a nonbusiness bad debt deduction.

"Contractor" conjures an image of an electrician installing a freezer, but why not also the guy who helps you fill the freezer with fish?  

In any case, they told you he's dead, and you believed them?  At least do a Google search for the obituary.  Was the payment made to an individual, or to a business entity? Has the business been sold, or liquidated?  If it does qualify as a nonbusiness bad debt, you have to show reasonable efforts to collect it, and that the remaining balance is totally worthless.  

And sending them a 1099-C is an admission that it is uncollectible.  So I wouldn't do that.