Forgiveness of Medical Debt

Discussion in 'Tax' started by m62, Aug 3, 2006.

  1. m62

    m62 Guest

    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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    m62, Aug 3, 2006
    #1
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  2. m62

    Phil Marti Guest

    "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?


    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

    << ======================================================= >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
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    << Copyright (2006) - All rights reserved. >>
    << ======================================================= >>
     
    Phil Marti, Aug 4, 2006
    #2
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  3. m62

    Brew1 Guest

    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.

    << ======================================================= >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ======================================================= >>
     
    Brew1, Aug 4, 2006
    #3
  4. 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?


    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

    << ======================================================= >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ======================================================= >>
     
    Seth Breidbart, Aug 4, 2006
    #4
  5. m62

    Han Guest

    "m62" <> 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

    << ======================================================= >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ======================================================= >>
     
    Han, Aug 4, 2006
    #5
  6. m62

    ed Guest

    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.

    << ======================================================= >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ======================================================= >>
     
    ed, Aug 4, 2006
    #6
  7. m62

    ed Guest

    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.

    << ======================================================= >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ======================================================= >>
     
    ed, Aug 4, 2006
    #7
  8. m62

    Missy Guest

    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

    << ======================================================= >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ======================================================= >>
     
    Missy, Aug 4, 2006
    #8
  9. "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 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

    << ======================================================= >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ======================================================= >>
     
    Stuart A. Bronstein, Aug 4, 2006
    #9
  10. m62

    hnsl Guest

    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

    << ======================================================= >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ======================================================= >>
     
    hnsl, Aug 4, 2006
    #10
  11. m62

    Katie Guest

    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?


    I agree with Seth and others who say this is a negotiated
    reduced price for the services rendered, and not forgiveness
    of debt.

    Katie in San Diego

    << ======================================================= >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ======================================================= >>
     
    Katie, Aug 4, 2006
    #11
  12. wrote:

    > 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.


    You could _offer_ anything.

    Medicare would pay them somewhat faster than the roughly 12
    years you're suggesting, though, and with a lot less
    paperwork than 1200 checks.

    Seth

    << ======================================================= >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ======================================================= >>
     
    Seth Breidbart, Aug 5, 2006
    #12
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