Often people fall on hard times and stop paying on credit cards. After a while the account may go to an outside debt collector who might offer a settlement of the debt for 30-40% of theoriginal sum. Once this is paid, the debtor often thinks the matter is closed, but it is not! It is very likely that the creditor will issue a 1099-C. This is a notice to IRS of the forgiven debt. If the debtor does not address this on his return he may get an IRS bill a year or two later with penalties and interest.
A foreclosure on a home may also result in a 1099-C from the mortgage lender if the property is sold for less than the amount of the loan. In this instance, a person loses their home and may also face a tax bill. Usually, the bill comes many months after the tax return was filed as a result of an IRS document matching program. This "under-reporter" notice brings grief to the taxpayer.
The key issue is whether or not the debtor was insolvent. If they were insolvent, it may not be taxable depending on the circumstances. There is an "Insolvency exclusion." You are insolvent when, and to the extent, your liabilities exceed the fair market value of your assets. So it is possible none of your forgiven debt is taxable or it is possible that all or only a portion of it is includable in income.
If you get a 1099-C, don't ignore it. Have a tax professional do your return and they can help you determine how much of the 1099-C is taxable. If you get a letter from IRS on a 1099-C you left off your return, get help ASAP. Otherwise, IRS might file a Federal Tax Lien and take action.
Look for a CPA, Enrolled Agent, Accredited Tax Advisor, Accredited Tax Preparer, or Tax Attorney to help you with serious tax issue. You may call the IRS at 1-800-829-1040 for help as well. Websites you can check out include: www.irs.gov; www.naea.org; www.nsacct.org; and www.exirsman.com.
James Robert Coleman, E.A., A.T.A.
Enrolled Agent & Accredited Tax Advisor
Member: National Association of Enrolled Agents
Former IRS Revenue Officer, GS-11
http://www.exirsman.com
The knock on the door from a Tax Inspector is... Read More
How Home-Based Businesses Can Avoid Giving Uncle Sam... Read More
"What we've got here is a failure to communicate." ... Read More
As tax time approaches, many home-based business owners begin completing... Read More
Small Businesses Filing Amended Federal Tax Returns to... Read More
Assume a buyer in Pakistan downloads software from the Internet... Read More
The 100 year old investment-banking firm of... Read More
In a past article I relayed the plight of the... Read More
Background issues of access to recordsTo assess the records at... Read More
Does this scene sound familiar? It's April 7. You haven't... Read More
Just image, you are a small manufacturing company, business has... Read More
Taxpayers have two easy and convenient options for getting copies... Read More
According to the IRS, taxpayers underpay their taxes by some... Read More
Anyone who is closely related to an accountant knows that... Read More
Yes, the tax season is upon with the first filing... Read More
In the rush to get tax returns prepared and filed... Read More
In the latest Star Wars episode, the evil empire executes... Read More
Reservists called to active duty and enlistees in the armed... Read More
As a gentleman was leaving my class recently, he wanted... Read More
If you have recently started an Internet or home business,... Read More
If you have employees, you are responsible for paying a... Read More
The U.S. Department of Agriculture estimates that it costs nearly... Read More
We need real tax reform and we need it now.... Read More
Misconceptions, misinterpretations and just plain "untruths" are floating about income... Read More
The IRS has obtained civil injunctions against more than 100... Read More
Own residential rental properties? This article discusses how income from... Read More
The federal tax code is complex. This complexity generally arises... Read More
Over 50% of marriages end in divorce in the United... Read More
The Internal Revenue Service has certified the 2006 Toyota Highlander... Read More
Q: I was contacted by the city tax collector to... Read More
Why a Corporation Helps Save You TaxesThe Tax Rates (Notice... Read More
As everyone in the U.S. knows, we have just passed... Read More
Practically every small business has receivables that it cannot obtain... Read More
Practically every small business has receivables that it cannot obtain... Read More
Once a year Canadian taxpayers are required, by law, to... Read More
Choosing the right tax preparer for your business is a... Read More
The electronic transaction ordinance defines the certificated copies in which... Read More
We need real tax reform and we need it now.... Read More
In the rush to get tax returns prepared and filed... Read More
With gas prices at an all time high before Hurricane... Read More
Most people trying to make a crust online (or offline... Read More
"Depreciation." For business owners, this word is the one most... Read More
Recently, I stumbled across a concept that could change your... Read More
Excerpted from the new book, "How to Do Space Age... Read More
If your business has employees, you must pay employment taxes.... Read More
An early distribution from an Individual Retirement Arrangement (IRA) or... Read More
Newlyweds and the recently divorced should make sure that names... Read More
While there are many equally valid reasons to incorporate, saving... Read More
The 100 year old investment-banking firm of... Read More
Often people fall on hard times and stop paying on... Read More
As a small business owner or self-employed person, one of... Read More
Ever wish that, as a business owner, you knew exactly... Read More
The Sarbanes-Oxley Act, also called the Public Company Accounting Reform... Read More
1812The first attempt to impose an income tax on America... Read More
In trying to comply with tax laws for your e-business,... Read More
At the present time a company incorporated in the Isle... Read More
No one likes paying tax. Everyone understands that tax is... Read More
Does your incorporated business pay alternative minimum tax ["AMT]? If... Read More
As everyone in the U.S. knows, we have just passed... Read More
So, you were pleasantly surprised to learn that you are... Read More
As we enter mid-March, taxpayers begin to become very interested... Read More
In the largest criminal tax case ever filed, KMPG has... Read More
If your like many, you don't always understand what people... Read More
Taxpayers have two easy and convenient options for getting copies... Read More
The United States is a nation of entrepreneurs. There are... Read More
NOTE: This is the first in a series of 5... Read More
Tax |