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Forgiveness of Medical Debt

 
 
m62
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      08-03-2006, 10:19 AM
I incurred uninsured medical expenses of $150,000 from a
hospital but they said provided I paid them 50000 within two
years from the date of service they would consider the
account paid in full.

Will the IRS consider the 100,000 difference a "forgiveness
of debt" and thus "income" for determining my tax liability?

If so, can I offset the 100,000 "income" with a "100,000"
medical expense to some degree to minimize the tax
liability?

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Phil Marti
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      08-04-2006, 11:04 AM
"m62" <(E-Mail Removed)> wrote:

> I incurred uninsured medical expenses of $150,000 from a
> hospital but they said provided I paid them 50000 within two
> years from the date of service they would consider the
> account paid in full.
>
> Will the IRS consider the 100,000 difference a "forgiveness
> of debt" and thus "income" for determining my tax liability?


Yes, it is forgiveness of debt, but not all forgiven debt is
income. See IRS Publication 525, paying special attention
to the information on insolvency.

Depending on your overall financial condition and equity in
assets, you may also want to consult a bankruptcy lawyer
before shelling out any money to the hospital.

--
Phil Marti
Clarksburg, MD

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Brew1
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      08-04-2006, 11:04 AM
m62 wrote:

> I incurred uninsured medical expenses of $150,000 from a
> hospital but they said provided I paid them 50000 within two
> years from the date of service they would consider the
> account paid in full.
>
> Will the IRS consider the 100,000 difference a "forgiveness
> of debt" and thus "income" for determining my tax liability?
>
> If so, can I offset the 100,000 "income" with a "100,000"
> medical expense to some degree to minimize the tax
> liability?


if you signed a note for a $150,000 loan and $100,000 of
that was "forgiven," you could incur a tax liability. As it
is, the hospital made up a figure and then gave you a
discount off that--nothing to worry about in terms of your
tax return.

You can only claim a medical deduction for expenses you pay
and for which you are not reimbursed.

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Seth Breidbart
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      08-04-2006, 11:04 AM
m62 <(E-Mail Removed)> wrote:

> I incurred uninsured medical expenses of $150,000 from a
> hospital but they said provided I paid them 50000 within two
> years from the date of service they would consider the
> account paid in full.
>
> Will the IRS consider the 100,000 difference a "forgiveness
> of debt" and thus "income" for determining my tax liability?


I think you'd be able to make a good argument that the
$150,000 is a "Manufacturer's suggested retail price" that
is never actually paid, and the $50,000 is fair market value
and the actual expense. (Depending on how fast you pay it,
you might have to consider a few thousand to be interest.)

Seth

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Han
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      08-04-2006, 11:23 AM
"m62" <(E-Mail Removed)> wrote in news:12d3jd5sac39t58

> I incurred uninsured medical expenses of $150,000 from a
> hospital but they said provided I paid them 50000 within two
> years from the date of service they would consider the
> account paid in full.
>
> Will the IRS consider the 100,000 difference a "forgiveness
> of debt" and thus "income" for determining my tax liability?
>
> If so, can I offset the 100,000 "income" with a "100,000"
> medical expense to some degree to minimize the tax
> liability?


I think that the hospital has negotiated a reduced price for
the services they provided. I would guess that if you had
been insured, they would have netted even less, certainly,
if you were to include the paperwork costs involved with the
back and forth between the hospital and the insurance
company.

There ought to be a law saying that everyone should pay the
lowest negotiated price for each and every procedure indeed
performed. That would cut down the cost of medical care so
much that everyone would come out ahead.

--
Best regards
Han
email address is invalid

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ed
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      08-04-2006, 11:23 AM
m62 wrote:

> I incurred uninsured medical expenses of $150,000 from a
> hospital but they said provided I paid them 50000 within two
> years from the date of service they would consider the
> account paid in full.
>
> Will the IRS consider the 100,000 difference a "forgiveness
> of debt" and thus "income" for determining my tax liability?
>
> If so, can I offset the 100,000 "income" with a "100,000"
> medical expense to some degree to minimize the tax
> liability?


Also if you can find out what Medicare would have paid them
(probable about $30,000) you can offer to settle for that,
paid at the rate of $25/week.

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ed
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      08-04-2006, 11:23 AM
m62 wrote:

> I incurred uninsured medical expenses of $150,000 from a
> hospital but they said provided I paid them 50000 within two
> years from the date of service they would consider the
> account paid in full.
>
> Will the IRS consider the 100,000 difference a "forgiveness
> of debt" and thus "income" for determining my tax liability?
>
> If so, can I offset the 100,000 "income" with a "100,000"
> medical expense to some degree to minimize the tax
> liability?


Also if you can find out what Medicare would have paid them
(probable about $30,000) you can offer to settle for that,
paid at the rate of $25/week.

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<< that may be imposed upon the taxpayer. >>
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Missy
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      08-04-2006, 11:23 AM
m62 wrote:

> I incurred uninsured medical expenses of $150,000 from a
> hospital but they said provided I paid them 50000 within two
> years from the date of service they would consider the
> account paid in full.
>
> Will the IRS consider the 100,000 difference a "forgiveness
> of debt" and thus "income" for determining my tax liability?
>
> If so, can I offset the 100,000 "income" with a "100,000"
> medical expense to some degree to minimize the tax
> liability?


If the hospital sends you and the IRS a form 1099C
(cancellation of debt) then it would be concidered income to
you. If they do not send the form to you, they may consider
the debt not paid in full.

My instinct answer (without looking anything up) to the
second question would be "no".

Missy Doyle

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Stuart A. Bronstein
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      08-04-2006, 10:53 PM
"Missy" <(E-Mail Removed)> wrote:
> m62 wrote:


>> I incurred uninsured medical expenses of $150,000 from a
>> hospital but they said provided I paid them 50000 within two
>> years from the date of service they would consider the
>> account paid in full.
>>
>> Will the IRS consider the 100,000 difference a "forgiveness
>> of debt" and thus "income" for determining my tax liability?


> If the hospital sends you and the IRS a form 1099C
> (cancellation of debt) then it would be concidered income to
> you. If they do not send the form to you, they may consider
> the debt not paid in full.


At least that's what the initial IRS reaction will be.

> My instinct answer (without looking anything up) to the
> second question would be "no".


I agree. I haven't researched this point, but I don't see
any reason why it shouldn't be treated as a discount rather
than cancellation of debt.

Stu

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hnsl
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      08-04-2006, 10:53 PM
Missy wrote:
> m62 wrote:


>> I incurred uninsured medical expenses of $150,000 from a
>> hospital but they said provided I paid them 50000 within two
>> years from the date of service they would consider the
>> account paid in full.
>>
>> Will the IRS consider the 100,000 difference a "forgiveness
>> of debt" and thus "income" for determining my tax liability?
>>
>> If so, can I offset the 100,000 "income" with a "100,000"
>> medical expense to some degree to minimize the tax
>> liability?


> If the hospital sends you and the IRS a form 1099C
> (cancellation of debt) then it would be concidered income to
> you. If they do not send the form to you, they may consider
> the debt not paid in full.


One further caveat though re any possibly forthcoming form
1099C. Just because one is issued doesn't mean it is
correctly done. Example is a client who was discharged from
bankruptcy in 2004 yet Citibank still sent a 1099C.

And I wouldn't doubt there would be other stories about
Citibank's dealings in these situations.

ChEAr$,
Harlan Lunsford, EA n LA

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