If the spouse that received the 1099-c is insolvent (to the extend of the canceled debt) but the other spouse is solvent, does this affect the ability to exclude canceled debt from income. What about reduction of tax attributes - does it matter which spouse the attributes belong to.
I don't think this is a settled issue, but one research source I've seen says the IRS position is that separately-owned assets of the spouse don't count for calculating the taxpayer's insolvency, only the taxpayer's separately-owned assets, and all the jointly-owned assets (and liabilities, of course).
Your state laws will ultimately determine how assets and liabilities of spouses are treated (separate vs. joint). You might want to consult an attorney for your state to determine what is separate and what is joint.
On a MFJ return, I would expect the tax attributes to be reduced jointly.
-Mark Bole
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