Old 1099-C Practical Advice

[Snaggletooth]

The 1099-C is not old (2015) but the loan story is very old. Original loan was 1996 - taxpayer and ex-wife signed loan. Divorce occurred in 2006 and decree states wife got the house (and the loan). Wife defaulted, but of course the bank doesn't care -- they have BOTH signatures in blood.

1099-C is for the amount of the original loan, not the amount defaulted, unless the bank is able to add interest and late charges to the principal. 1099-C lists the social security # of the husband, not the wife who was awarded the home and responsibility for the loan.

I am amazed that a situation this old gets resurrected for an attempt to ring up income for 2015, but not aware of anything (such as a statute of limitations) which prevents them from doing this.

Do any of you have any practical advice as to how to approach this? Please don't send a link to 275 pages of code and regs unless you accompany it with observations or comments.

Thanks, Snag

[Snaggletooth]

Strategy, Not Codes

Please don't send a link to 275 pages of code and regs unless you accompany it with observations or comments.

It shouldn't surprise me that no one responded with a caviat such as the above. I'll need to speak to this so those of you who otherwise may think I'm too obstreperous to appreciate links.

I will be honest about my dislike of links to stilted language in code, regs, pubs, etc. which requires the reader to peruse millennial pages to find the answer to a question. If we had that kind of time, we wouldn't need this forum at all, we could spend all day long researching. Particularly distasteful are the responses that ask us to read an IRS publications which most of us have done before we ever post on the forum. I do very much appreciate a link that will take me directly to something that is extremely relevant and speaks to the situation at hand.

For the subject at hand, I do know something about debt forgiveness, although not as much as many of you. I can go through the nuts and bolts of reporting on the tax return. However, my interest is in exploring STRATEGY of minimizing the effect from a very old loan with questionable circumstances. Strategy and code-knowledge is not necessarily the same, although code knowledge is indeed a contributing factor.

If any of you have innovative ideas about how to approach this very old loan and the circumstances in the original post, I'll be interested in hearing from you.

[Burke]

Couple of things, both gleaned from Instructions for Completion of 1099C:

1) Box 2 is supposed to show only amount of outstanding principal. No interest and/or expenses of foreclosure. (Page 2)

2) 1099A and 1099C are supposed to be reported to all debtors of record individually. (Page 4: Multiple Debtors) 1099-C apparently can be sent to only the first name on the loan records, if the lender believes the debtors are husband and wife, lived in the residence when the loan was obtained, and the lender has no information that the situation has changed.

Did the client ever notify the lender of the transfer of the home and loan responsibility? If not, he has some work to do to get this corrected.

[DonB]

Did the client ever notify the lender of the transfer of the home and loan responsibility? If not, he has some work to do to get this corrected.

My thoughts: He obviously did not remove himself from the loan and his liability to the loan company remains. If the court settlement says wife is responsible, then he may have to pursue a civil action if he gets stuck with the whole amount. IRS goes after the easiest party when there is joint liability and one has limited resources.. Can he get the mortgage company to reissue the 1099-C 50% to each party? Just my thoughts.

[Burke]

Since they were jointly and severally liable, I believe 1099C has to show 100% of loan balance to each party. If he can prove responsibility was transferred to spouse for the loan, then he may have some recourse. Of course, the bank did not have to agree to release him from the obligation -- his attorney should have taken care of that at the time, before the decree was issued. As DonB says, he may have some civil recourse. We don't know how this progressed to this point, either. Was foreclosure enacted? Has the house been sold?

[Snaggletooth]

Thanks for Responses

The responses DO help some, so thanks for posting. There are all manner of things that don't seem right. Amount on the 1099-C is for entire proceeds of the loan, and I know principle was reduced somewhat before the divorce. I'm also thinking of a nominee statement transferring half of the problem to his ex-wife. Joint and several liability should not result in the totality of income being assigned to one party, although I understand issuing the 1099-C is normally under one social security number.

The loan was small, involving a mobile home and no land. Surprised he even got a loan if not owning the land it was sitting on. No one knows what happened to the mobile home - it has been so long ago. If it was sold, the bank was supposed to issue a 1099-A (I think). But we know this thing has not been handled correctly by the bank as well...

[Snaggletooth]

What About These?

Still scratching my head...

Assuming the mobile home was sold at some point, can taxpayer write off the loss of the home against the loan?

The "loss of the home" occurred when judge awarded the home to his ex-wife. And since there is no taxable or deductible element to a divorce settlement, can he really claim he has "basis" in the home? Of course, he had "basis" when he bought it, and by the same reasoning, he couldn't have lost basis in the divorce as well, if indeed he ever had it...

And it was personal residence, so no loss allowed on the sale.

I realize I'm going in circles, and going to read up some more.