Foreclosure/Bankruptcy

[equinecpa]

I have a couple of questions on foreclosure and bankruptcy. I've got two different clients who filed bankruptcy in 2008 and 2009.

1st case: He had a farm property. He filed for bankruptcy in 2009. I"m not sure if the house was foreclosed on before bankruptcy or not.

a) Does it matter?
b) Will there be a 1099-a in either case? In reading the instructions for the 1099-A the lender has until the end of January (just like with regular 1099's) to furnish the taxpayer with the 1099-A. Is it usual for them to issue them when the title reverts to the lender or in January? I ask as my client doesn't have one but he has also moved 3 times since he lost his farm.

2nd Case: Client filed for bankruptcy in 2008. Bankruptcy was discharged in 2009. A couple of the credit card creditors have sent her 1099-c's in 2009. The debt on these credit cards related to her partnership business which was closed at the time of bankruptcy. Does she have to include this in income because it was business debt forgiven?

I can see this is going to be a fun tax year!

Carolyn

[JG EA]

Bankruptcy: Well TTB 14-12 discusses the types. Start there?

And on 14-10

Nontaxable Cancellation of Debt Income
Income from cancellation of debt is not taxed if any
of the following conditions apply.
• The cancellation takes place in a bankruptcy case under Title 11
of the U.S. Code. See Bankruptcy, page 14-12.
• The cancellation takes place when the taxpayer is insolvent, to
the extent the taxpayer is insolvent.
• The debt is qualifi ed farm debt owed to a qualifi ed person. See
Farm Debt Cancellation, page 5-26.

Then go to the appropriate choice.
Maybe the C's were not included in the bankruptcy? Then maybe insolvency may work on those.

http://www.irs.gov/newsroom/article/0,,id=201877,00.html

A taxpayer is insolvent when his or her total liabilities exceed his or her total assets. The forgiven debt may be excluded as income under the "insolvency" exclusion. Normally, a taxpayer is not required to include forgiven debts in income to the extent that the taxpayer is insolvent. The forgiven debt may also qualify for exclusion if the debt was discharged in a Title 11 bankruptcy proceeding or if the debt is qualified farm indebtedness or qualified real property business indebtedness. If you believe you qualify for any of these exceptions, see the instructions for Form 982. For more information, see highlights of the Mortgage Forgiveness Debt Relief Act.

[equinecpa]

Working on Case A: Client filed for bankruptcy. Bank took back house/farm -notes o/s 1 million, fmv of property $500,000

I understand that the client won't have COD income because of the bankruptcy. What I have yet to establish is

a) Do I have to deal with gain/loss on this property ( I believe that should be handled in the estate but I have yet to get copies of the bankruptcy papers.). If I have to handle it in which year is it considered disposed of the year of bankruptcy or the year the bank actually took it back or the year of discharge?

b) Reduction in tax attributes (again I"m hoping a 982 was filed with a 1041 but that would only be too nice..): What year do you do this?

Publication 908 says " Reductions in basis due to debt cancellation are made at the beginning of the tax year following the cancellation. The reduction applies to property held at that time."

I"m a bit at a loss in what year this applies. Bankruptcy was discharged in 2009. Does this mean the basis reduction is applied in 2010??