The Tax Consequences of John Oliver’s 15 Million Dollar Debt Forgiveness
Last week, John Oliver, on Last Week Tonight with John Oliver, purchased the medical debt of numerous individuals totaling an amount of approximately $15,000,000. John Oliver set up a company and then purchased the medical debt of $15,000,000 for approximately $60,000. John Oliver then forgave the debt for all of these individuals. However, will these individuals be required to pay taxes on their forgiven debt?
In most cases, when a debt is forgiven by a creditor the individual debtor is then presumed to have income, based upon the Internal Revenue Code. When a debt is forgiven in most cases the debtor will received an IRS Form 1099-C when the debt being forgiven is more than $600. These Form 1099-Cs are then reported to the Internal Revenue Service. The debtors are then required to report this amount on their tax returns as income. While there are certain circumstances when the cancelled debt will not be considered income, not everyone will always fall into those categories. Most of the categories are very obsolete; however, the most common category is insolvency. Insolvency has to be proven using IRS Form 982 and filing it with the tax return.
In the case of John Oliver’s debt forgiveness, there will actually be no tax consequences for any of the debt forgiveness recipients. John Oliver avoided tax liability for the individuals by working with a non-profit organization in forgiving the medical debt of all of these individuals, nearly 9,000 people.
In many circumstances taxpayer do not realize that this cancelled debt needs to be reported as income and the IRS ends up assessing it to the taxpayer after they have filed their tax returns. In many cases although the taxpayer has been relieved a debt being due to a creditor, then end up with a debt to the IRS.
Although John Oliver’s debt forgiveness recipients are lucky to have had their debts forgiven and done in a manner that is tax free, taxpayers should be aware that just because a debt has been forgiven that it does not always mean that they will not have any liability on that debt. That debt may end up becoming a liability to the IRS.
Longman & Van Grack’s Tax Litigation & Controversy Attorneys regularly represent clients in many different tax problems, tax audits, and IRS disputes. Robb Longman has assisted many clients through countless tax concerns against the IRS and other state taxing agencies as well. If you would like to contact Robb or another tax attorneys at Longman & Van Grack, you can reach us at (301) 291-5027.
