A client is bailing her son out of his credit card debt (about $ 45,000. on 9 cards) She was told that if she settles for 50% of the debt owed to one bank, her son will receive a 1099 for "forgiveness of debt" for the other 50%. Do banks normally send 1099's for all forgiveness of debt? The amounts owed vary ($2,000. - 8,000.)
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1099c
Creditors normally do issue 1099C's for forgiveness of debt and it is then up to the taxpayer to utilize and document on their tax return any exceptions (ie insolvency, federal bankruptcy) to taxability. Exceptions are covered in The Tax Book. -
Forgiveness of Debt
That is correct. If the bank or credit card company forgives a debt, or part of debt, then a
1099C is issued. IRS gets copy and the debtor receives copy.Comment
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just settled one of these "messes"
Client sold home in 2002 for less than mortgage value and received 1099-C for about $35,000. She was insolvent at the time due to the fact that her only asset was her home. We filed proper paperwork after the fact (I didn't do original return) in August of last year, and just got notice that they are accepting our position last Friday. So, you can fight the 1099, but it can be a very long process.Comment
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Mortgage
company "has" to file the 1099. It is not the creditor's job to determine solvency it is the taxpayer's job. What paper work HAD to be filed?? 1040X because the return was done wrong the first time???Comment
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1040X and 982
the 982 should have been attached to the original return. Therefore we had to attach this to the 1040X we sent in. the process would have gone much smoother if handled correctly in the beginning, or so I was told.
the 982 is used to reduce the taxability of the discharge by the amount that the taxpayer is insolvent.Comment
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Insolvency and Cancellation of Debt
Thank you for your replies re the cancellation of debt issue with my client. I mentioned the insolvency provision and found out that the 45 yr old son has a 401k with his employer of about $40,000. and another amounting to $15,000. with a former employer. Are these considered assets in determining how insolvent he is ?Comment
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Thank God that if nothing else my kid learned how to handle credit at a young age. She hates when she can't pay her balance each month. Now if I could only get her to vote Republican!Comment
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Originally posted by Bucky
Show me a young Conservative and I'll show you someone with no heart. Show me an old Liberal and I'll show you someone with no brains. - Winston ChurchillComment
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Another good quote
A liberal is a man with both feet planted firmly in the air-Winston ChurchillComment
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