My client borrowed money for his Schedule C business. In 2007 the debt was cancelled and a 1099-C was issued. This debt was cancelled as part of a banklruptcy. Box 6 on the 1099 C was not checked. From my reading, I think the $70,000 of forgiven debt is not taxable. He has no assests or attributes to reduce. What is the best way to show this on Form 1040 to avoid a letter from IRS?
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Say what?
Self employed person can't loan money to himself. Sounds like this was a draw disguised as a loan."A man that holds a cat by the tail learns something he can learn no other way." - Mark Twain -
Is the taxpayer insolvent? You could then file form 982 w/ Part I box 1b checked.Comment
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File F-1041
Dear Kram BergGold
I suspect taxmandan misread your facts, thinking you wrote: "... borrowed money 'from' his Schedule C business" instead of what you actually did write.
KBG, do you know that a person in bankruptcy files a fiduciary return? Actually, what is called the "bankruptcy estate" files F-1041, attaching F-1040 to it and writing "See attached F-1040" on F-1041. Read up on this and all should become clear. See the instructions to F-1041 and IRS Pub 908.Roland Slugg
"I do what I can."Comment
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Roland I did not read up on it currently and do not have time to, but if I recall correctly the "bankruptcy estate" only needs to file if it has income, which most do not. Maybe you could attach a statement w/ a copy of the bankruptcy discharge to serve the same purpose?Comment
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To Jesse
Your advice to fill out Form 982 was the ticket. ThanksComment
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