A canceled debt of a single-member LLC is taxable COD income to its owner.
A man wholly ,owned an LLC that was disregarded for federal tax purposes. The LLC borrowed money from a bank but didn’t repay it. Eight years later, the bank sent Form 1099-C to the LLC, showing $35,000 of cancellation-of-debt income.
The man didn’t include the amount on his 1040, claiming it was the LLC’s income not his…and the LLC was no longer in existence. But that’s not how it works. The LLC was treated as a disregarded entity, and, as such, the man was required to include the income on his 1040 and pay the tax.
Ah, if only he had another owner. Beware the Sole LLC.
Jacobowitz, TC Memo. 2023-107