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Cancellation of Indebtedness Income? Or not?

TaxGirl3
Level 5

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!

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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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9 Comments 9
Terry53029
Level 14
Level 14

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

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.
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).

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...

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?

TaxGirl3
Level 5

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

 

Thanks for responding!

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TaxGirl3
Level 5

Interesting citation.  There was an installment agreement and the annual statement shows the balances being removed due to CSED.

 

Thanks for your response!

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TaxGirl3
Level 5

Got it, thank you!

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TaxGirl3
Level 5

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

 

Thanks.

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TaxGirl3
Level 5

Thanks for the response, much appreciated!

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