Question on insolvency/assets

[fivetwos]

Hello all. I'd appreciate any feedback/help...

I have received a pair of 1099c for forgiven debt. My accountant tells me I can exclude this from my income since I am insolvent. While that may be true, I am somewhat skeptical and fear that this may come back to bite later on. Here's the issue:

-The forgiven debt and plenty of others, were incurred by me personally in 2003 and earlier.

-Married in 2005, bought home subseqently (deed and mtg. in her name only)

-We do not have any type of accounts together.

The tax guy says the home and savings account in her name are hers only and should not be used in calculating my insolvency.

Any thoughts???

[taxmandan]

The question isn't if you are insolvent now, but were you insolvent at the time of the debt forgiveness?

Are you in a community property state?

And, if you filed jointly with your wife in the years of the debt forgiveness you might have a problem showing insolvency and exclude her assets in the calculation. I doubt the IRS agrees with your accountant on that issue.

You have to submit a Form 982 with your return to show you were insolvent, you can't just ignore the 1099-C. Count on the IRS challenging it and making you prove that you were insolvent, it's standard for them to do so. Which means you should weigh the cost of paying the tax vs. paying for representation to fight the IRS on audit and probably appeals.

[fivetwos]

The time of forgiveness on the 1099 is July, and we are using that time in calculating the insolvency.

The state is NJ. I do not think it is community property state.

Are you saying that the IRS will challenge every return with a 982 attached?