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Cancellation of Indebtedness Income? Or not?

Solk
Level 3

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 11

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 Replies 9
Terry53029
Level 11
Level 11

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

Solk
Level 3

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

 

Thanks.

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sjrcpa
Level 15

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


ex-AllStar
Solk
Level 3

Got it, thank you!

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rbynaker
Level 11

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).

View solution in original post

Solk
Level 3

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

 

Thanks for responding!

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Solk
Level 3

Thanks for the response, much appreciated!

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BobKamman
Level 14

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?

Solk
Level 3

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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