In an active 13, and have a 2010 tax bill for over 2k...do I have options?

[stratos]

Interesting. Our chapter 13 Trustee required us to surrender a rental property because we were cash flow negative by about $100 per month. The HELOC was stripped as unsecured, the stay was lifted and foreclosure ensued in 2010 (we filed in 2009). I received a 1099-A which I included in my package to our CPA to prepare tax returns for 2010. The FMV and the loan balance were identical. Yesterday, I got the returns from the CPA with a balance owed to the IRS of just over $7K. I had expected to owe about $2K. The apparent reason for the remarkable increase was found on schedule D and on form 4797 which showed a capital gain of over $37K! I will certainly be contacting my BK attorney and my CPA tomorrow, however, I thought y'all might be interested in this development. Since we have done everything we can to hoard money since filing, we can pay this bill, if we have to, without modification. However, it would seem that a modified BK payment might be in order.

Did your accountant know that the debt was cancelled under a bankruptcy proceeding? Debts cancelled under bankruptcy proceedings aren't counted as income. IRS Form 982 may be what you need. Check with your accountant.

[1dayatatime]

Thanks for your response. I have stared at many posts on this forum and at form 982 and at IRS words about form 982. I have to say that my pea brain just can't get it. It seems that if the 1099-A is for a rental, vs primary residence, then one can check the BK box and then has to deal with something called "tax attributes". I haven't been able to discover what those are. I had hoped that my CPA would know. I will continue to pursue this until I get it! I have a phone meeting scheduled with my attorney on Wednesday afternoon. I'll find out what he says, then go from there.

[1dayatatime]

OK, I've gone through the posts re: Form -982. I see that HHM says this form only goes with a 1099-C and that for a rental the 1099-A response is Schedule D. If that is correct, my CPA got it right and my savings account just got $7K lighter!

[stratos]

Sorry, I didn't catch that the taxes were on capital gains rather than on cancellation of debt. I would be interested to hear how this turns out.

[1dayatatime]

I found the following answer (about a 1099-A) from an online CPA about a foreclosure on a primary residence that had been turned into a rental for a couple of years: "If this was your primary residence, there is nothing to report. If it’s a rental property, then yes, you will need to report it.
If you don’t get a Form 1099-C, there is nothing further for you to do. If you do get the Form 1099-C, you will get an exclusion for (1) primary residence if it qualifies for the indebtedness, (2) insolvency (if applicable) or (3) bankruptcy if the debt was discharged in the indebtedness."

During a phone conversation with our BK attorney this afternoon, he stated unequivocally that there will be no tax on this surrendered property, that I need to tell my CPA to file Form-982 and that's the end of it! Our CPA has not yet returned my phone call so I don't have anything to report from him yet. I must say that I have spent the better part of 2 days researching this issue and nothing is obvious to me. The IRS terms of art are meaningless. What I think I know, at this point, is that since it is a rental property I must fill out a 982 to inform the IRS that I am excluding $37K of capital gain because I am bankrupt! Does it really have to be this hard!!

[stratos]

I suspect your BK atty is making the same error I was making -- seeing the facts as he expected them to be rather than as they are. Since it's unusual for someone to have cap gains on foreclosed property, he/she may have glossed over that fact. The 1099-A is used to determine loss or gain from the abandonment. Your CPA apparently determined you had a gain, which is taxable. A 1099-C would show income from discharge of indebtedness (which you may not have had). To avoid the tax on that income, a debtor would file Form 982. Here's an IRS link that breaks it down: http://www.irs.gov/publications/p544/ch01.html (search for 1099-A and 1099-C)

Note -- I am not an expert on this!

[justbroke]

It is possible to have a gain on a foreclosure property quite easily if it was an investment property and you were depreciating the property.

[1dayatatime]

Stratos and Justbroke, thanks for hanging with me on this. After looking at IRS Pub544. This is what I found:

“From Pub 544:
Bankruptcy. Generally, a transfer (other than by sale or exchange) of property from a debtor to a bankruptcy estate is not treated as a disposition. Consequently, the transfer generally does not result in gain or loss. For more information, see Publication 908, Bankruptcy Tax Guide.
From: Bankruptcy Tax Guide (Pub 908)
Debt Cancellation Exclusions
Do not include a canceled debt in gross income if any of the following situations apply:
• The cancellation takes place in a bankruptcy case under U.S. bankruptcy code. See Bankruptcy Case Exclusion, later
Bankruptcy Case Exclusion
. . . None of the debt cancelled in a bankruptcy case is included in the debtor’s gross income in the year it was canceled. Instead, certain losses, credits, and basis of property must be reduced by the amount of excluded income (but not below zero). These losses,credits and basis in property are called tax attributes and are discussed under Reduction of Tax Attributes, later.
Reduction of Tax Attributes
If a debtor excludes canceled debt from income because it is canceled in a bankruptcy case . . . he must use the excluded amount to reduce certain assets and the losses and credits listed later. By reducing the tax attributes, the taxs on the canceled debt is partially postponed instead of being entirely forgiven. This prevents an excessive tax benefit from debt cancellation.”
Having studied the above, and everything around it, I do not believe I have experienced “cancellation of debt” since I have not gotten a 1099-C. I have a 1099-A, “Acquisition or Abandonment of Secured Property”.

Here's what I need to know: With a 1099-A, do I fill out a Form 982? If so, do I check box 1a (excluded due to discharge of indebtedness in a title 11 case)? if so, What do I reduce, a basis, a capital gain, or?

[justbroke]

I'm not a tax expert. Dealing with 1099-A/Cs after bankruptcy is something that I always recommend the poster go to a qualified tax accountant and/or tax attorney. Many CPAs don't know how to complete a valid tax return from a 1099-A/C generated by the disposition of an investment property that had been reported with rental receipts and depreciated over some period of time.

[1dayatatime]

Yeah. Since I have a bankruptcy attorney and I have a CPA who has been doing my returns for 25 years or so, and they appear to disagree about how to proceed, I was hoping to gain enough knowledge to mitigate the descrepancy. I guess it is this hard.

[justbroke]

Yes, it is that hard. This is why it is so difficult. You may want to call the IRS because if the IRS gives you bad information, it's not your fault. However, if your attorney or CPA gives you bad advice, then it's your fault. LOL

[1dayatatime]

A government employee vs two highly paid professionals - Thanks a lot. Also LOL!

[1dayatatime]

OK, I think I finally understand. No 1099-C = no canceled debt. A 1099-C for an investment property while in BK also = no canceled debt, but, ya still gotta recapture the depreciation. In my case there will be no canceled debt because 1) the balance due and the FMV were identical and 2) I'm in BK 13. The 1099-A tells the IRS that a "sale has occured" and I must pay taxes on the depreciation. Ergo, my CPA filled out Form 4797 "Sales of Business Property", entered the "sale price", in this case the balance and FMV were the same, entered the cost basis which was less than the sale price, reduced the cost basis by the allowable depreciation and subtracted that from the sale price and came up with a gain of almost $38K. I conclude that my attorney and the CPA are both right, they were just descibing different things. I would have been better off financially if the trustee had let me keep the negative cash flow rental but only by about $1400. I apologize for doing all my thinking out loud here, but it did help - Thanks

[justbroke]

That is exactly how I did mine!

[lillymarlene]

Ya, I am going the installment route too. Opening up a can with BK 13 doesn't seem safe. LOL.

I know I'm probably late replying but, I sure agree with this. Just found out 3 days ago, I owe over $2K in taxes for 2010. (I'm self employed, and my income is uneven.) Last year especially, first 6 months, I started doing much better, and was hoping to get caught up on some things. Then I was "asked" to leave my business location. So, for doing a little better last year, of course I didn't send in enough on estimated taxes.

I sent in a partial payment, and called the IRS yesterday, to see about setting up an installment plan for the $2,300 I owe. They said that I should be receiving a form in a couple of weeks. I want to pay this off within this year, and sure hope I don't mess up my 13:-)