Cancellation of Indebtedness Income? Or not?

[TaxGirl3]

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!

[Terry53029]

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]

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

[rbynaker · Accepted solution]

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]

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]

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

Thanks for responding!

[TaxGirl3]

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

Thanks for your response!

[TaxGirl3]

Got it, thank you!

[TaxGirl3]

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

Thanks.

[TaxGirl3]

Thanks for the response, much appreciated!