1099C times two ?

[Harvey Lucas]

The bank, Bank of America, agreed to cancel taxpayers 2nd mortgage of 100,000.

The 2nd mortgage is qualified principal residence debt, ie, used to acquire the home.

Bank of America issued a 1099C form to the husband for 100,000 under his ss#

The also issued a 1099C form to the wife for 100,000 under her ss#

So on the 982 form, I'm pretty sure I need to indicate 200,000 of debt being excluded from Income, even though in actuality there is only 1000,000 of debt.

And on line 10b of 982, I need to indicate 200,000 basis reduction in home, even though in actuality, there is only 100,000 of basis reduction.

Sound OK?

Thanks,
Harvey Lucas

[Koss]

No way...

That's not the economic reality.

The bank did not cancel $200,000 of debt.

Maybe it won't have an impact on the bottom line of their return if you report $200,000 in cancelled debt. But mathematically, it's wrong, and it affects basis, and could have other unintended consequences down the road.

I'm not even going to try to address the question of whether the bank correctly issued two different forms. I don't know, and it doesn't matter. Even if it was error for the bank to issue the forms this way, I don't think I would waste time trying to get the bank to correct it. You'll be talking to a wall.

Perhaps your goal is report the data from the 1099 forms in order to avoid a letter from the IRS.

I don't know if it is possible to accurately report the transaction and avoid an inquiry from the IRS. You could try adding a statement of explanation to the return, but it's unlikely that anyone at the IRS will read it until after a notice is issued.

In response to an IRS notice, it should be relatively easy to produce documentation to show that only $100,000 of debt was cancelled.

I would report what actually happened--not what some clerk at the bank thinks belongs on an information return.

BMK

[Harvey Lucas]

It seems

i have no real choice.

Yes, my goal is to avoid a letter from the IRS.

And, my goal is to present the proper amount of tax.

It seems my approach will accomplish both.

I do not agree with how the bank reported, but I have no control over this, and I agree, getting them to fix it is an exercise in frustration.

I don't want to spend any more time on it than I have to because the client would be unwilling to pay for the extra time spent trying to "fix it".

All is well so long as I recognize the correct basis in the home when and if it is sold in the future.

I am seeing a lot of this type of reporting on these things from the banks.

I have another one, similar situation, however it is brother and sister who are both obligors on the mortgage.

Portion of debt is cancelled because short sale did not cover all of the debt. Bank issues 1099c for full amount to both parties.

I think best appraoch is to recognize proper amount of tax, if any, on both tax returns, even if the presentation seems "odd"

I continue to be frustrated about the complexity of COD Income rules, reporting, ambiguity, lack of good resources on how to report etc.

Especially confusing to me is the "recourse", vs "non recourse" concept, and why taxation is diferent for one or the other. The rational and logic is what seems to be missing!

The most dificult part for me is trying to decide if the morgage is R or NR....

For example, in my state, it seems it can be both at the same time, ie, if it is a nonjudicial forclosure then the loan is NR, however, same loan is R if it is a judicial forclosure...

So, at what point in time do I determine if it is R or NR ??

And, where is the logic behind this nonsensical approach?

Ok, now I am ranting, sorry.

Harvey Lucas

[Gary2]

The bank probably reported it correctly. The 1099-C instructions say that for debts of $10K or more incurred in 1995 or later, they must report the entire amount on each debtor's 1099-C, with one exception: they're allowed to file just one when it's husband and wife living together, but they're not required to reduce it to one.

However, this situation is also documented on behalf of the debtors in Pub. 4861, under "Persons who each receive a Form 1099-C showing the full amount of debt." Quick answer: Treat it as $100,000 canceled.

[S T]

Reporting is going to be the problem on a "joint" issued 1099C, when now filing separate in the year of receipt of the 1099c and trying to match the IRS Computer System and hopefully avoid the later CP 2000 notice.

I have one
debt was joint - couple is now divorced- filing as single - Bank issued 1099C as if 100% as a married joint, but each of the parties is or should only report one-half.

Thanks for the info though,

Sandy