1099-C Insolvency question vs. inheritance

[Meadowland]

I was in the process of negotiating debt in 2014-2015 when my dad passed in 2015, which as a result, I inherited a modest amount of money. The negotiated debts were finalized in 2015, briefly after he passed away. I didn't receive the inheritance until near the end of the year, while at the time of the cancelled debts, I had no money and was 'insolvent.'

So my question is, was I really still insolvent at the time of the agreements and cancelled debt, or was I not, since I was already named in the will, establishing that I was to receive the inheritance, even tho I hadn't received anything yet?

[justbroke]

IRS Publication 4681

You were insolvent immediately before the cancellation to the extent that the total of all of your liabilities was more than the FMV of all of your assets immediately before the cancellation.

I wish I could answer this. This question is probably beyond the scope as most of us are more on the bankruptcy side and not on the tax side. If you had filed bankruptcy on that debt, this would be easy -- File Form 982 and check the box for Title 11 (and consult a tax professional).

Unfortunately, you'll need a good read on this from a tax professional as to whether your "entitlement" to the inheritance made you "not" insolvent, or only partially insolvent, immediately before the debt was cancelled. An entitlement to an inheritance (or bequest) is an asset (at least in the bankruptcy context).

This scenario is what I call the "nightmare" scenario when it comes to negotiating debt and receiving a 1099-C outside bankruptcy or actual insolvency.

[Meadowland]

Thanks for the reply, justbroke. It gives me some insight that it's not an easy one and that finding a qualified tax pro to answer this might be my next step. I have some time before getting back to the irs, so I'll wait until the dust clears post 4/18. If I find an answer, I'll post it here.