Legal Services Successfully Resolves Elderly Man’s Tax Debt

Paulo, a divorced man in his 60s, came to Legal Services because he received a notice from the IRS stating that he owes an additional $9,053 for the 2019 tax year. The additional amount was for taxes and penalties on some $29,000 of cancellation of debt income reported on a Form 1099-C by a car finance company and some computational changes based on the increased income. The cancellation of debt income was for leased cars that were voluntarily surrendered to the finance company in 2010 after Paulo’s business was adversely impacted by the prior economic recession and he could no longer afford the payments.

After investigating the case, Legal Services Senior Attorney Mary Ann David assisted Paulo in responding to the IRS notice. She explained and demonstrated that the cancellation of debt income should not be taxable because Paulo was insolvent on the day before the debts were cancelled. This is one of the exceptions to whether cancellation of debt income is taxable. Additionally, she argued that the Form 1099-C issued by the finance company was not valid based on the disputed debt or contested liability doctrine. In this case, there was a question as to whether the debts were still enforceable under Florida state law given that the cars had been surrendered 9 years earlier and the statute of limitations had likely passed.

The IRS agreed with Legal Services’ position and closed its examination of Paulo’s 2019 tax return without making any changes to the tax return. Paulo was very appreciative he no longer must worry about paying taxes he simply could not afford and happy he owes $0.

The Low-Income Taxpayer Clinic is directed by Senior Attorney Mary Ann David and utilizes both law student and pro bono attorney volunteers. The Clinic is funded in part by The Jerome A. Yavitz Charitable Foundation. To apply for services, CLICK HERE.