CP2000 debt cancellation for insolvent taxpayer

[Jesse]

Taxpayer received CP2000 for tax year 2007. Credit card debt was cancelled but nothing was reported, however taxpayer was indeed insolvent to the extent well over what was cancelled.

I thought I would respond with form 982 and a statement of insolvency. Just curious if anyone else has come across this and what you did. I see no reason to amend if I attach the form 982 to the notice?

[RLymanC]

Cp2000

Sounds like it's worth a try. No information would flow to the 1040X since it COD was not reported on the original return.

Looks like no statement necessary if Part 1 Line 1b and Line 2 are checked.

[TAX]

Foreclosure

I have a situation where client home had a foreclosure and as a result client received
1099-C for 2005.

Client never told me about it. Now client has letter from IRS which has taxes and Accuracy related penalty.

(1) Can I use form 982 or some other reason to avoid paying taxes?

(2) If not, is there a way to avoid penalty?

Thank you!

[taxmandan]

Taxpayer received CP2000 for tax year 2007. Credit card debt was cancelled but nothing was reported, however taxpayer was indeed insolvent to the extent well over what was cancelled.

I thought I would respond with form 982 and a statement of insolvency. Just curious if anyone else has come across this and what you did. I see no reason to amend if I attach the form 982 to the notice?

And start the TP on collecting the necessary paperwork to prove insolvency. This won't go away with either a 1040X or just a 982. The next letter will claim the tp was not insolvent, and you'll only have a few weeks to submit proof otherwise.

[joanmcq]

You need to have the taxpayer prepare and sign a statement of assets & liabilities. no need to do a 1040x, but I would prepare the 982 and send it in with a letter of explaination in answer to the CP2000.

[kaimana]

And may I suggest that you fax it to the IRS....it will be handled quicker.

[WhiteOleander]

You need to have the taxpayer prepare and sign a statement of assets & liabilities. no need to do a 1040x, but I would prepare the 982 and send it in with a letter of explaination in answer to the CP2000.

Also, the assets and liabilities need to be valued as of the date of the debt forgiveness. Not the current date. They may be insolvent now, but not when the debt was forgiven, or vice versa.