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All income the decedent would have received had death not occurred that was not properly includible on the final return, discussed earlier, is income in respect of a decedent.
That is true for all income types including forgiven debt. Generally - that amount should be reported on the estate tax return form 1041 and because the estate is insolvent - the form 982 should be used to exclude that amount from taxable income.
In your specific situation - to avoid additional expenses for filing the estate tax return - I suggest to write a letter to the IRS with explanation - attach a copy of the death certificate and a copy of the form 1099-C asking to close the decedent's account. You may just walk into your local IRS office - see locations here - http://www.irs.gov/localcontacts/article/0,,id=98330,00.html - no appointment is necessary. You will discuss your issues with an IRS representative across the counter and handle the letter.