1099-C Cancellation of Debt

[Sherill]

Client rec'd two l099-C, each from a different Credit Card Company (2006)
1 - $14,445
2 - $21,887

Are these to be calculated at capital gain rate?
I'm lost.
Thanx

[BOB W]

No> It is a line 21 entry at ordinary tax rates. If the taxpayer was insolvent or filed bankrupsy at the time, this income is not taxable.

[JG EA]

Have the client do an list of assets and liabilities before and after the debt forgiveness.

Is Cancellation of Debt income always taxable?

Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve: .....

Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you.You are insolvent when your total debts are more than the fair market value of your total assets.Insolvency can be fairly complex to determine and the assistance of a tax professional is recommended if you believe you qualify for this exception.

http://www.irs.gov/newsroom/article/0,,id=174034,00.html