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Discharge of debt

  • 1.  Discharge of debt

    Posted 04-08-2019 18:26
    Hello All

    The end is nearly in sight!

    I have a client who had some Cancellation of Debt income.  They are border line for insolvency.  I am attempting to figure out what must be included as assets.

    Do pension funds count when calculating assets?  Both taxpayer and spouse are under 59 1/2 and therefore cannot withdraw without penalty if that makes any difference.

    Mortgage plus home equity and credit card debt exceeds the value of the home. They have no other significant assets. Cars are leased.

    Bank account balances are minimal. Paycheck to paycheck living.

    Thanks for any feedback.


    Paul Sadej
    Bellmore NY

  • 2.  RE: Discharge of debt

    Silver Most Valuable Member
    Posted 04-09-2019 09:18
    ​Exempt assets such as pension plans and IRA's are generally included in the asset part of the insolvency calculation.  An interest in an employer's plan may not - see below.

    Taxpayer's interest in pension plan didn't enter into CODI insolvency calculation

    Schieber, TC Memo 2017-32

    The Tax Court has held that a taxpayer's interest in his employer's defined benefit pension plan, with respect to which his only right was to receive monthly payments, was not an asset for purposes of determining whether he was insolvent under Code Sec. 108 's exclusion for cancellation of debt income (CODI) for insolvent taxpayers.

    Robert Barnett
    CPA, ESQ.
    Capell Barnett Matalon & Schoenfeld LLP

  • 3.  RE: Discharge of debt

    Posted 04-09-2019 11:32
    Thank you!

    Sent from my iPhone