Received 1099 C been discharged???

[missemo]

I was wondering if this happened to any one else....I was discharged 8/09 I recieved a form 1099c ..cancellation of debt... issued by BA and Discover....
Both these creditor's were in my discharge. I did call my attorney who said you need to fill out a 982 form (reduction of tax due to discharge of indebtness). Saying you were insolvent at that time. Has any one else heard of this???? I was very concerned at first but My attorney said to give this info to my accountant. Please share your feeling's. Thanks and good luck to all....

[Dst1]

This is normal. Do as your lawyer says.

[whipster1]

The creditor should have checked box 6. Debt discharged in BK.

[missemo]

Bank of America has box 6 checked but Discover has box 5 checked. What do I do??? I have the discharge showing they were included!!! Who will the IRS belive? OMG these creditor's still haunt me.

[ToughTimes]

Attorney is only half right. Form 982 is correct, however your reason is line 1a, Discharge of indebtedness in a Title 11 case if the way you got the debt cancelled was your discharged bankruptcy.

IRS Publication 4681: Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals) says: "To show that your debt was canceled in a bankruptcy case and is excluded from income, attach Form 982 to your federal income tax return and check the box on line 1a. Lines 1b through 1f do not apply to a cancellation that occurs in a title 11 bankruptcy case." on page 4.

IRS Publication 908: Bankruptcy Tax Guide says:
"Order of exclusions. If the cancellation of debt occurs in a title 11 bankruptcy case, the bankruptcy exclusion takes precedence over the insolvency, qualified farm debt, qualified real property business indebtedness, or qualified principal residence indebtedness exclusions." on page 24.

Our attorney is very competent at bankruptcy, but even casual questions indicate to me that he knows very, very little about taxes. I'm actually pretty surprised at how little he appears to understand accounting or tax of any sort. Consult a tax professional for tax advice; your BK attorney for BK advice.

Disclaimer: I am not a tax professional. I just read the IRS stuff that's available free on their site & quote it here.

[ToughTimes]

Bank of America has box 6 checked but Discover has box 5 checked. What do I do??? I have the discharge showing they were included!!! Who will the IRS belive? OMG these creditor's still haunt me.

I would (and, in fact will) fill out my taxes as IRS instructs, checking box 1a of Form 982 for any debt canceled as a result of bankruptcy discharge. If they want more documentation, you have it and can provide it by fax if they ask. Contrary to others' apparent impressions, when IRS has questioned anything on our returns, I've really found them to be cordial and efficient when I supply the requested documentation.

As far as who IRS will believe, I'm going to choose Federal Court over Discover. More, box 5 is not incorrect, it is just not as correct as would be box 6. I'm also going to go out on a limb and guess that this won't be the first 1099-C that IRS has seen that has less-than-best-choice box checked. Nor the last.

[missemo]

Still cant seem to get this tax paper work complete.....The problem that seem's to be delaying is the 1099c form I recived the box# 2 is checked..saying the debt was canceled box #6 should of been in this place saying it was discharged. My account said this is what is taking the time she has spoken with other professional's to handle this matter. Please has any other people recived a 1099c checked with # 2..how have you handled this problem????I would be so thankful for any help.Have a great day.

[tdawg]

I thought if the debt was charged off before you filed, that you'd owe taxes on it. One of my debts was charged off 1 month before I filed, but I haven't received a 1099, so I'm not sure what to do about it.

[BCA2009]

Toughtimes is exactly right, these forms are screwed up all of the time. Everyone is getting too caught up in the details. Complete form 982, check the box for "discharged in Title 11 bankruptcy". Then forget about it. If for some reason two years from now, you get a letter from the IRS asking about it, fax them a copy of your discharge. The odds of you getting a corrected 1099 from a large bank are nil. You should always report items on your tax return honestly as the actually occured. Not according to screwed up documents from a third party. If the IRS inquires at a later date, provide the correct documentation then.

For the poster who had debts discharged prior to BK, did you include that bank/CC in your BK filing (just to be on the safe side)? If so treat it as if it was discharges in BK. If you didn't include them in your BK filing, you probably qualify under the insolvency exemption.

[missemo]

This was not a title 11 case....It was a chapter 7 I was insolvent...If I say it was a title 11 case then I am stating I was Not insolvent. I do worry about the irs breathing down my neck in 2 year's. They can be jerk's if they want to be. I just don't want to check some thing that could come back to bite me if you know what I mean. Who's error is this by the wrong box being checked???? My attorney or the C.C. company.Thanks for any advice....

[SMinGA]

Title 11, not chapter 11. Title 11 is the US Bankruptcy Code.

And a 'charged off' debt, to my understanding, is more an accounting term for the OC. Not the same thing as forgiven debt. When it was charged off doesn't really matter - a debt discharged in bankruptcy is not taxable as income.

[tdawg]

For the poster who had debts discharged prior to BK, did you include that bank/CC in your BK filing (just to be on the safe side)? If so treat it as if it was discharges in BK. If you didn't include them in your BK filing, you probably qualify under the insolvency exemption.

I did include the bank in my BK filing because I had another loan with them. I actually had both accounts listed on my BK. So, then should that account show as Included in Bankruptcy on my credit report? It's the only one that shows as a Charge Off on my credit report. The charge off did occur 1 month before I filed chapter 7.

[BCA2009]

This was not a title 11 case....It was a chapter 7 I was insolvent...If I say it was a title 11 case then I am stating I was Not insolvent. I do worry about the irs breathing down my neck in 2 year's. They can be jerk's if they want to be. I just don't want to check some thing that could come back to bite me if you know what I mean. Who's error is this by the wrong box being checked???? My attorney or the C.C. company.Thanks for any advice....

As SMin GA said, Title 11 covers the entire BK code. If you were discharged in BK this would be the selection you would choose on form 982.

tdawg: As long as you had them listed in your BK, just treat it as if it were discharged in BK.

As far as problems on 1099's go, banks make errors on them all the time. Banks are required to report the forgiven/discharged debt. They can be penalized if they don't. But as a general rule, nobody complains much about errors where boxes are checked incorrectly. Unless of course it causes additional taxes for the tax payer. And then the taxpayer has to go back to the bank or whoever issued the 1099 and get a corrected one. Other than getting a copy of the corrected 1099, the IRS usually is not invovled in the correction process.

To try to getted a corrected 1099 could take hours on the phone being transferred from one department to the next and then waiting two weeks for it to be mailed. Then when it doesn't show up, you start the process over again.

So, I would forget about trying to get a corrected 1099. I would submit my tax return correctly, as if I received the forms correctly. Then if you get asked about later, you can send the IRS the proof that you filed correctly.

What most people don't even consider is that you are responsible for claiming all income whether you receive a 1099 or not. IRS rules don't say that you only report income if you get a W-2 or a 1099. You are required by law to correctly report your income. Now, obviously if the IRS doesn't receive a copy of a W-2 or 1099, they might not ever catch you, but you are still required to report it.

So to sum it up, if you report what you know you are required to report, you have done your duty.

[MarieT]

Is there any way other than bankruptcy to get out of paying full income tax on the part of the debt that is forgiven by a credit card when you do a settlement with the credit card?

As a real-life example, I have negotiated one of our cards from $20,000 down to $4,000 but I am looking at having to come up with the money to pay an additional estimated 28% income tax on the $16,000 that is "forgiven" which would be an additional $4,480. The reason I am asking is that when I said something to the collector that if I settled with him I would still have to pay the income tax on it he said the tax rate on that would only be 10%. Is this just another example of collectors lieing?

I am in the process of trying to figure out if there's any way at all I can tak ecare of our debts by settling. I was hoping to do Ch7 but the atorney I met with said looks more like Ch7 even though it came out CH7 on the online means test. Not sure if I can deal with this going on for another five years so right now I'm just trying to educate myself on all the options.

[BCA2009]

If you were insolvent at the time the debt was forgiven you can avoid paying tax on it. You would use form 982, line 1b.

See IRS Publication 4681 for a worksheet to determine if you were insolvent by IRS definition.