Paying taxes on Ch. 7 discharged debts

[gunnagtthr]

Hello All
I am new to this forum and think this is the best place to get help! I have not yet filed Ch. 7, although I have paid the attorney and have begun the paperwork.
Yesterday, I was getting my 2011 taxes done at H and R Block and talking to the accountant about my impending bankruptcy.
He told me about 1099-Cs and that I most likely will have to pay income tax on the debt that will be discharged through the bankruptcy. HUH???? He says it is up to the credit card companies if they want to file a 1099C. He said I could probably be declared indigent and not have to pay the taxes, though.
When I got home, I called the bankruptcy attorney to ask him about that. He would NOT discuss that possibility, said it's not his area of expertise, and that I would need to talk to a tax attorney if I had questions. He said that his job was to help me get the debts discharged and not to deal with any tax issues.
So....I then went on the IRS page and it sounds like there is no tax liability on a bankruptcy, UNLESS the bills have gone to collections. Obviously I don't have money to hire a tax attorney.
I need advice, Please....... thank you soooo much! If you need more info, just ask!

[keepmine]

You need a new tax adviser.
If you recevive any 1099C's post bk, you'll need to file IRS form 982 with your return.
You have no tax liability on discharged debt. Go to www.irs.gov and enter form 982 in the search function. It'll tell you all you need to know. Doesn't matter if the debt is in collections or not.

[gunnagtthr]

Do you have any ideas why my bankruptcy attorney almost sounded pissed that I even asked him about it? I like him otherwise, but I think he was keeping himself from going mildly postal and would not answer any questions about it.

[LadyInTheRed]

My advice is to find another accountant to do your taxes.

I've read the IRS guides and came to the same conclusion as you. You may get 1099-C's for debt discharged in BK. If you do, you attach a form to your return and check a box to indicate the debt was discharged in bankruptcy. See my blog entry on the subject for the form number and links to the IRS publications I read. No need to show you are insolvent like you would if debt was foregiven but not discharged in BK. (I hope indigent is your word and not his. As any CPA should know, insolvent is the correct term ).

[LadyInTheRed]

You need a new tax adviser.

LOL. I left my computer and came back to see I hadn't posted my reply. After I hit the button I saw that you gave the same advice. Great minds!

[SMinGA2]

My best guess? Your BK attorney is not educated in tax law and doesn't want to get in trouble for giving you advice he is not qualified to give.

Form 982, should you happen to get a 1099C for something discharged in bankruptcy, has a place to mark that the amount is not included in your income because it was discharged in a title 11 case. (Title 11 = bankruptcy.)

Your tax adviser SHOULD know this, but I have a close friend who used to work for H&R Block. Lets just say that the caliber of people who work there seasonally are not always the greatest. (That's why my friend quit H&R Block...)

[LadyInTheRed]

Do you have any ideas why my bankruptcy attorney almost sounded pissed that I even asked him about it? I like him otherwise, but I think he was keeping himself from going mildly postal and would not answer any questions about it.

In the area of law where I work we often get income tax questions. The attorneys I work for often tell clients "You wouldn't take legal advice from your CPA. Don't take tax advice from your lawyer." Sounds like your attorney should have been nicer about it. But, there are many good attorneys who are not very good people persons.

[gunnagtthr]

The funny thing is I actually really like this tax guy and he seems to know taxes, per se. He is the office supervisor and his dad owns the business, so when he told me about paying taxes on the debt, I freaked out (well, not in the office - hahaha) because he seems pretty educated. I thought I read somewhere in the IRS pub about taxes on debt being forgiven unless it has been charged off or gone to collections, but I need to pour over them again. By bedtime, my brain was so fried. Like being bankrupt isnt bad enough...
And he did use the word indigent. He said that their firm has done the app process for people who have been stuck with 1099C tax bills, and if they make less than $9000 ish, they can be declared indigent and forgiven of the taxes on the 1099C. Of course, maybe if that is for something other than bankruptcy. I dont know...I just want to make sure I don't have to pay taxes on this crap. This is stressful enough.
I am going to start a new thread with a different type of question also. Now that I found people who seem to know how this all works, I need another opinion. Is there also therapy offered on this board? hahaha!

[LadyInTheRed]

Indigent means you are poor and can't provide for your basic needs. The term your CPA should be using in the context of the taxabillity of forgiven debt is insolvent which means that you have more debts than assets. It's possible you are both indigent and insolve and that he is right that you can be forgiven your taxes if you are indigent (I don't know either way about that). But, if you are insolvent and debt is forgiven but not discharged, the amount forgiven is not taxable so you have no tax that needs to be forgiven. If your debts are discharged and you get a 1099c, you don't have to prove your indigent or insolvent. You just check a box on a form and attach it to your income tax return. The supervisor of a tax office should know this, even if it his H&R Block.

I'd run from this CPA. Many people who don't know what they are talking about are good at making people believe they know what they are talking about.

LOL! For all you know, I am one of those people. So, don't take my word for it. You can read about it for yourself in the IRS publication linked in my blog: http://www.bkforum.com/entry.php?727...ischarged-debt

[ValleYum]

Just an observation: H&R Block, Jackson Hewitt, Liberty Taxes, etc. are NOT (typically) staffed by accountants. They are staffed with tax preparers.

Any Joe Blow could go to Jackson Hewitt's "Tax College", pay their tuition, pass and possibly get a job that same year as a tax preparer!

[gunnagtthr]

Dam*....just when I thought I found a decent "tax guy"....ugh. You all have been incredible and I can sleep tonight! I KNEW I would get more answers from people who have gone through this.
Unnerving, isn't it?
Hey, I posted a thread about my "homes" ( live in neither but don't want to screw over those that do). Can you give me your opinions? Thanks so much!

[AngelinaCat]

Many people who don't know what they are talking about are good at making people believe they know what they are talking about.

LOL! I used to to teach Computer Applications for CompUSA, and while I have a very good working knowledge of most of the common applications, Word, Excel, etc., occasionally something would come up like, ACT!, and I would have to 'prep' on it in order to teach it the next day. And when the butterflies all started colliding in my stomach, the morning before I went in, 'Hub would say: "At least you know more about it than they (the students) do...."

[justbroke]

Definitely need to find a new tax preparer! I didn't even know that H&R Block tax preparers could provide tax advice?

[mountanddo]

It's like going to Great Clips for a haircut. They know the basics but don't have them do anything difficult or you might be living with it for awhile.

[justbroke]

It's like going to Great Clips for a haircut. They know the basics but don't have them do anything difficult or you might be living with it for awhile.

Yeah, H&R Block messed up my taxes once. Didn't know how to do an NOL (Net Operating Loss) carryback. The excuse was that business taxes were done from a different office and that I should go to that office in the future!

Oh well.