1099 C - Credit Card Debt

[NewMexico]

Client Received 1099c from Discover Bank-
Box 2 $9549.92
Box 1 12/31/2006

For Credit Card Debt.

I've read the IRS info, but not sure ?

Is this income ? ( It is..) ...any way out of excluding this ?

Thanks

[RLymanC]

Cancellation of debt

Found this with a google search:

When a creditor forgives a debt without payment. Cancellation of debt is taxable as income unless the creditor intended it as a gift or it meets certain exceptions relating to bankruptcy, insolvency, or farming.

[oceanlovin'ea]

Income

I had a client a few years ago, an older lady who owed a large amount to a credit card. They agreed to reduce the interest she had to pay. Then she got a 1099C and had to pay taxes on the amount they didn't make her pay.

I did some research to try to find a way around this and there wasn't. After the credit card company has billed for interest, if they agree to reduce the amount owed it is income.

Linda F

[S T]

1099C and Insolvency

It is going to depend whether or not the t/p filed bankruptcy or if the t/p is insolvent. You might be able to file form 982 and obtain a partial or full exclusion of the amount.

There have been a few discussions on this board on this topic. You can go to "Search This Forum" and type in Insolvency and then review the threads. Too many to list.

I found another outline which might be of some help as well. http://www.lsnv.org/Debt_Cancellation_Vignette.doc (Legal Aid of Hawaii also had this outline) as well as http://www.pro1040.com/debt_cancellation.htm

Also see TB starting at page 14-9 and Pub 908.

Sandy

[jimmcg]

1099-c

Federal bankruptcy and insolvency are the two general exceptions for excluding part or all of debt forgiveness from taxable income. Both need to be documented with the tax return. I have not looked but I would think there should be some explanation and suggested format for documentation in The Tax Book.

[Zee]

This may be a "dumb" question...but, if the debt was forgiven as part of a bankruptcy proceedings, wouldn't the 1099 be different? Or, not issued in the first place?

[thomtax]

Zee

If I remember correctly, there is a box on the 1099 that is checked if the 1099 has to do with a bankruptcy proceeding.

LT

[Girard Van De Lay]

had one

I just finished a return with a 1099-c and there is a box for bankrupcy. The client was surprised that she had to claim the debt as income as she stated one of the things that the credit place did not tell her. Hope this helps. My question is what about all of the fees the client paid if they hired someone to help them is this deductable? I could not find anything on this matter.