Level 5

Cancellation of Indebtedness Income? Or not?

Forum|Forum|5 years ago
December 9, 2020
4 replies
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C-Corp had old payroll tax debt forgiven (CSED - collection statute expiration date). Is that taxable? Or not? Is it even forgiven or is it still owed but the IRS can't collect?

Thank you!

This topic has been closed for replies.

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Terry53029

Intuit Community Champion

if a 941 was filed the IRS has 3 years from the time the 941 was filed to assess the tax penalty. Did your client ever file the 941

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TaxGirl3Author

Level 5

Yes, 941s were filed. This wasn't a 941 penalty, it was the 941 taxes themselves.

Thanks.

sjrcpa

Level 15

Unless the corporation is insolvent, I don't see why it would not be taxable.

The more I know the more I don’t know.

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TaxGirl3Author

Level 5

Got it, thank you!

rbynaker

Level 13

Cash or accrual basis taxpayer? What type of payroll taxes? Trust fund taxes would likely have been deducted in the prior year as salaries & wages. Employer taxes, maybe or maybe not. If it was written off in a prior year then it should probably be written back on (pending insolvency calculation).

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TaxGirl3Author

Level 5

Accrual. A bit of 940, but also 941. There was an installment agreement.

Thanks for responding!

BobKamman

Level 15

For an "on the one hand this but on the other hand that" discussion, see

https://www.currentfederaltaxdevelopments.com/blog/2015/5/12/expiration-of-statute-of-limitations-on-collection-of-outstanding-debt-found-not-to-have-caused-discharge-of-indebtedness-for-federal-tax-purposes

I wonder how many solvent corporations the IRS is allowing off the hook without enforced collection before the statute expires. Also, are you sure it has expired? Who told you?