Insolvency & Form 982

[Bill Tubbs]

Client originally got a CP2000 for a 1099-C (Cancellation of Debt) that was originally not reported as income (tax year 2005) -- he brought in this CP2000 this spring with his 2006 papers -- new client for me for 2006 tax year. I worked up an assets/liabilities page for him and included that in a letter to the IRS in response to the CP2000. He has $800 in assets (bicycle, clothes, checking account) and $10,000 in debt (mainly credit card debt; half of which was cancelled while he was in jail).

IRS received the letter and consequently issued 2 letters. One received around Jun 5 (a CP-2005 "Closing Notice" saying (paraphrased) thank you for the additional information and "we were able to clear up the differences"). The second was a letter just received earlier this week, in part "We were unable to accept your statement because we also need a completed Form 982 for insolvency".

1) First the IRS issues a "Closing Notice" and then issues a new letter that they need more info -- gotta love it...

2) Form 982 -- anyone have experience filling this out? I'm figuring:
1B) check
2) $4840
3) ??? (has no real property; never operated a business)
4-9) "0" (zero)
10) ???
11a-c) "0" (zero)
12-13) "0" (zero)

3) In the future, anytime I determine insolvency, should Form 982 be filed with the original return for that year?

Thanks,
Bill

[WhiteOleander]

You have handled the insolvency correctly. The Form 982 has to be filed with a timely filed return. Since this involves an '05 return, you cannot use the form.

So,you properly proved the insolvency by writing the statement..

Get your client to come in or (if possible) get a POA and call the IRS. Get them to tell you what is up. If they press the issue, point out to them that the instructions for Form 982 state it can only be used on a timely filed return.

HTH

[JON]

Note

A friend of a friend(girl friend) came to see me. They had thought their credit card debt had been cancelled. They said they had received a 1099 form reflecting that a few years back and there was no income tax problem. The problem is they still have a collection agency calling them on this. I had no explanation and the facts presented could be wrong. I wonder if a credit card agency sells the debt to a collection agency for a $.01 on the $1-does the credit card company send a 1099 to the credit card holder for the difference???

The only other time I saw this was a friend of mine died. The spouse discovered financial problems later, including he had used a credit card of her mothers to get cash for gambling. So I try to help her. The credit card he used is actually her fathers. He had died in 1977, this is 2002. The credit card company said give them a copy of the death certificate and it would be written off as unauthorized use. We did give them a copy of it and they said everything was take care of. Right, about a year letter she gets a notice from a collection agency, attorney, asking for collection. I send copies of everything to them. A year after that she gets a notice from a differenct collection agency, attorney, asking for collection. I send the same information-there is no telephone numbers to call to talk to a body. Last November a 10:00PM she got a knock on her door and it was a collection agency again trying to get money. She blew up-had kept copies of everything and gave it to him. When she called me the next day she said it was a terrible experience, but she thought the collector felt worse than her and she doubted if he would continue in the business.

So a long story longer-do the credit card companies really write off the debt or just sell it, ???

[Bill Tubbs]

Got the POA

You have handled the insolvency correctly. The Form 982 has to be filed with a timely filed return. Since this involves an '05 return, you cannot use the form.

So,you properly proved the insolvency by writing the statement..

Get your client to come in or (if possible) get a POA and call the IRS. Get them to tell you what is up. If they press the issue, point out to them that the instructions for Form 982 state it can only be used on a timely filed return.

HTH

When client came in to drop off the letters, I had him sign a POA. With that I called the PPL -- her computer showed the AUR (automatic under reporting) on his SSN was closed, but she thought I should fax the department that is requesting the F982 and ask for clarification of status before proceeding, which I did. Now we just sit and wait for a reply.

Thanks,
Bill