Final answer:
Forgiveness of tax liability in the year of death is granted when the decedent dies in a combat zone on active-duty military service. Other scenarios listed, such as federally declared disasters, no surviving relatives, or outstanding medical expenses, do not qualify for such tax forgiveness.
the correct option is B. In a combat zone while on active-duty military service.
Step-by-step explanation:
The situation in which the decedent is eligible for forgiveness of tax liability in the year of death is when they die in a combat zone while on active-duty military service. The Internal Revenue Code provides for tax relief for military service members under certain conditions, including death resulting from active-duty service. It is an acknowledgment of the ultimate sacrifice made by military personnel.
Neither dying as the result of a federally declared disaster, having no surviving relatives, nor having outstanding medical expenses that exceed final-year taxable income specifically qualify for forgiveness of tax liability in the year of death, according to federal tax law. The estate might receive different types of tax consideration, such as the potential to write off medical expenses as deductions, but this does not equate to tax forgiveness due to death itself.
Therefore, the correct option is B, which acknowledges the special circumstance of dying in a combat zone while on active-duty military service as a situation where tax liability may be forgiven.