Trying to fill out Insolvency 982 Form

[ready2puke]

Can anyone with experience filling out these forms help me out please? I'm sure this is very similar to filling out the assets section of the BK forms..
I have crap for clothes and all my shoes now have mildew/mold on them...I only have junkie costume jewerly, and and old computer and tv and average furniture...Nothing to write home about..but I'm having a hard time coming up with a $$$$ amount.
I know its FMV and thrift store values..
My car is a 2001 Honda CRV in poor condition but thats about 6500.00
I don't want to value my stuff too low or too high..
Thinking...50.00 for the 4yr old laptop computer.....200. clothing....50 jewelry.....3150.00 for furnishings, kitchen stuff and 500 tools which would be my salon equipment..
Do these values seems ok to you all???
Thanks in advance..
R2P

[AngelinaCat]

You are probably a bit high for the furniture. Go look at yard sales where they have furniture. Furniture is a huge pain in the neck and back to load and haul around and deal with--not to mention getting caught in the rain with. Yard sales will generally price it to get rid of it. Also look at stores where they sell used furniture. If the item sells for say $50.00, the store has to make a bit of a profit. They will probably only have paid $25.00 for it. Kitchen stuff goes for quarters and dimes at yard sales. Also a coffeemaker is only going to sell for $5.00 at a thrift--if that. A yard sale will probably sell it for $3.00. (My G-Daughter and I do yard sales almost every weekend.)

And you are too high on your clothes too. $50.00 sounds about right for a used laptop, but keep in mind that you would likely not find anyone who would want it.

California allows you a 'Tools of the Trade' exemption, so your $500.00 there is probably about right.

Good luck to you.

[bcss]

Are you sure about your car? 2001 Honda in poor condition is worth $6500? The rest I would listen to a-cat.

[IHateChase]

My friend was selling his 01 Accord for 4k in decent shape.
I agree with bcss, yours may be overpriced

[ready2puke]

Thanks guys..I think (know) your all right..I'm way too high..but my car even tho is needs work only has 69k miles on it..thats why kbb has it for 6500.
Cat remember this isn't BK this is insolvency so there is no exemption..just an estimate debt vs. assets..
I guess I feel my stuff has to be worth something lol..guess not!!!!!!!!!!!!!
I just checked again Kelly blue book and I think I can get away with 5,900 for the car..
Furniture included some salon stuff also..but I'm sure I can lower it..
I'll lower the clothes to 100.00...man I feel worthless lol..
Has anyone who has file for insolvency ever been denied or questions by the IRS?
Thanks everyone..

[ready2puke]

Wow just checked Edmunds on my car...4,000. Wonder why the big difference between Kelly and Edmunds..Think I'll go with Edmunds..

[keepsmiling]

You are probably stressing too much over this. BK by definition means you are insolvent. The only issue is whether or not you have significant retirement funds- these aren't exempt for the form as they are for BK (usually- someone here managed to exempt them)

I think we will all be very surprised if you have a problem.

[ready2puke]

Hi Keep..yes I stress over everything..I have NOT filed BK as I'm going the SOL route..4 years this month and no lawsuits so I'm saving the BK card for later if I need it...as I have no health insurance and am turning 63 in Nov.
I have 11,500 in IRA's and am counting that in my insolvency form..so far I have 107k in debt and 42k in assets..

[keepsmiling]

Ah... gotcha.
Got the same prob with health ins, never know what the story will be... still hoping to find the cash to insure dh but it's year to year. It's a huge factor and one reason we haven't filed yet either.

Good luck with the SOL, hope you make it!

[ready2puke]

Thanks...still have 1 more week before BoA goes SOL..all the others have passed..Citi was half my debt and they did the 1099-C hence the insolvency....eyes, fingers, toes and everything else crossed..
Then I have 3 more years to field calls ..then the process of getting all those dings off my credit score...never thought in a million years I'd be able to hang on for 4 years with all the phone calls..but I did!!! I guess I'm stronger than I thought and also very lucky no one sued me...I guess they thought they would get nadda and I'm also self employed and they can not garnish..

[keepsmiling]

We are also self employed but got sued after two years. Gonna fight it, will keep all posted.
Don't you have GV yet? I wouldn't have made it this long without it.

[GoingDown]

Here's a YouTube video about it...

http://www.youtube.com/watch?v=qdpwtaSGpfQ

Taxpayer Assistance Centers

http://www.irs.gov/uac/Contact-Your-Local-IRS-Office-1

Form 4681 http://www.irs.gov/pub/irs-pdf/p4681.pdf


"If you had forgiven credit card debt during the past three years and paid taxes on that additional income, you might be eligible for a tax refund -- and not even know it.

How? A national taxpayer advocacy agency says many people who qualify for an exemption to avoid paying taxes on forgiven credit card debt don't take advantage of it. The IRS tax forms and publications are so confusing that many people -- whose lives may be in financial upheaval because of debt -- just give up and pay the taxes.

"Unfortunately, it's complicated and daunting for people to get through," says Annette Nellen of the American Institute of Certified Public Accountants.

Tax experts say it's not too late for some affected debtors to fix the oversight. Anyone who missed the chance to get the exemption in the 2008, 2009 or 2010 tax years can still do so by filing amended returns. They remind anyone doing their 2011 taxes to seek professional tax help and do the necessary calculations to figure out if they can avoid paying taxes on forgiven credit card debt.

Low-income families 'burdened'

According to the IRS, if you received a 1099-C tax notice that you had "income" from canceled or forgiven credit card debts, you may not have to pay taxes on some or all of that income. If your liabilities exceeded your assets when you settled the debt, then you were insolvent, according to the IRS. Insolvency is one of the key avenues for avoiding paying taxes on canceled credit card debt. Yet, studies show low-income families most likely to meet the insolvency criteria don't take the exemption.

"There are some people who are so far in debt and they don't have a lot of assets," says Nellen. "They don't have a house. They don't own a car. For them, it's pretty clear that they are insolvent. For others, it's a lot more complicated."

Not filing for the exemption means some people may have higher tax bills and may also reap fewer benefits from tax credits for lower income working families.

"Taxpayers may not understand that they are not required to include canceled debt in income if they were insolvent when the debt was canceled," according to Nina Olson, head of the National Taxpayer Advocate Service, a citizen watchdog division of the IRS.

Olson's 2010 annual report to Congress identified several ongoing problems with canceled debt income and taxes, including creditors reporting the wrong amount of canceled debt to the IRS and debt collection continuing on canceled debt that placed a "burden" on taxpayers. (See story, "Canceled debt tax reporting rife with problems").

Confusion about who does or doesn't have to pay taxes on canceled debt income and whether the reporting requirements are fair to consumers comes at a time when canceled debt tax notices have skyrocketed. According to IRS data, fewer than 1 million people received canceled debt tax notices in 2003. Since then, that number has more than tripled -- to 3.9 million in 2010. The IRS projects some 6.3 million notices may be issued for the 2011 tax year.

1099-C tax notices don't always mean income is taxable

At issue is the so-called 1099-C tax notice. Whenever borrowers pay less than the amount owed on a credit card or other debt, the difference between what they paid and what was owed -- or the amount forgiven -- is considered income by the IRS.

For example, if you had $10,000 in credit card debt and negotiated with the creditor to settle the debt by paying only $5,000, the remaining $5,000 may be considered taxable income.

Banks, credit unions and other creditors are required to send debtors and the IRS 1099-C notices showing the amount of the forgiven debt. Depending on the individual's income level, deductions and tax bracket, they may owe taxes on that canceled debt "income."

However, the tax code spells out exemptions that allow certain debtors to avoid paying taxes on canceled debt.

"People get these forms and, of course, the natural reaction is it has to go on my taxes," says Nellen, a professor of taxation at San Jose State University. She points out that not all 1099-C "income" is taxable. Debts that were discharged through Chapter 11 bankruptcy are exempt. Another way around the tax bite is to show you had more debts than assets just before your credit card debts were canceled.

Insolvency exclusion rarely used

"One of the reasons you can exclude that cancellation of debt income is that you're insolvent," says Nellen. "You can only exclude it up to the amount of your insolvency."

That means that if, in the example of the $5,000 of forgiven debt income, the individual had total assets valued at $50,000 and liabilities totaling $53,000 just before the credit card debt was canceled, their finances were under water by $3,000. The $5,000 canceled debt income would be reduced by the $3,000 insolvency. Only the remaining $2,000 in forgiven debt would be reported on the tax return as income. If the person was insolvent by $5,000 or more, then all of the canceled debt income would be exempt from taxation.

In order to take advantage of the insolvency exemption, however, taxpayers must fill out and attach IRS Form 982 along with the 1099-C to their federal income tax return. IRS Publication 4681 includes a worksheet to help log liabilities and assets and calculate whether an individual was indeed insolvent.

"It's complicated to go through and figure out if you're insolvent," says Nellen. People deep in debt may say, "'Hey I had bills I had to pay,' but that doesn't mean you were insolvent. You might have some assets that you weren't thinking about."

Assets minus liabilities

Figuring out insolvency means going through your jewelry, clothing, books, DVDs, lawn tools and everything else you own and placing a fair market value on those items. Then, add up all of your outstanding debts and obligations, including any outstanding and overdue child care or utility bills. If you subtract the liabilities from the assets and get anything less than zero, you're insolvent.

Adds Nellen: "If you asked the average person on the street, 'Are you insolvent?' they would say, 'I think so,' but they might not be."

The taxpayer advocate's review found lower than expected numbers of people claiming insolvency. In a random sample of 380 taxpayers who filed 1099-C forms with their 2008 tax returns, the tax advocate found that nearly half of them (47%) had adjusted gross incomes of less than 250% of the federal poverty level. That meant they were low-income and probably would have qualified for the insolvency exemption.

Only about 1 in 10 file for exemption but half are low-income

Yet, IRS records requested by CreditCards.com show only 7.6% of the 1099-C notices issued in 2008 were accompanied by Form 982 to exempt the canceled debt from taxation. Similarly, in 2009, although creditors issued nearly 2.7 million 1099-C notices, only 11.6% of those filed for exemptions.

The IRS sends taxpayers who fail to report the 1099-C income on their tax returns a "Notice CP 2000." That letter is the first step toward the IRS assessing a tax based on the full amount of the forgiven debt -- regardless of whether the person may have qualified for an exemption.

When the taxpayer advocate's office looked at a sample of tax returns that were flagged by the IRS and issued CP 2000 notices for not reporting 1099-C income, it found further evidence that taxpayers are confused about how to claim an exemption from the tax.

Both Nellen and the taxpayer advocate point out that families under stress from the economic slowdown and deep in debt may be too distracted with other life demands to struggle through the complicated 1099-C tax reporting rules. They also may not be able to afford to take their tax problems to professional tax preparers.

"Obviously, if they were having tough times, you might not expect that they were paying attention to everything," says Nellen. "They just might not be aware of it."

According to the tax advocate, taxpayers who get IRS notices solely for not reporting 1099-C income often just give up and agree to pay the tax. The advocate reviewed a random sample of 71 IRS CP 2000 letters and the tax returns associated with them. Nearly all had claimed the Earned Income Tax Credit (EITC) and had low incomes -- indications that they would have likely qualified as insolvent and exempt from taxation for canceled debt. Still, nearly half of the 71 taxpayers never responded to the IRS notice and about the same amount responded but agreed to the tax assessment.

"Both of these measures suggest that taxpayers may not understand that they are not required to include canceled debt in income if they were insolvent when the debt was canceled," the advocate wrote in its 2010 report to Congress. "IRS initiatives to identify insolvency would benefit these taxpayers, especially because the cancellation of debt income, in addition to increasing adjusted gross income, reduced or eliminated the earned income tax credit that most of these taxpayers claimed. The average amount of lost EITC was $893 for the 71 taxpayers that were issued a Notice CP 2000 solely because they reportedly had cancellation of debt income."

In its response to the tax advocate's report, the IRS says its workers look for evidence of bankruptcy before sending a CP 2000 notice, but generally cannot determine if a taxpayer is insolvent based solely on data available to the IRS. "... Using income alone as an exclusion criterion is not a valid indicator of taxpayers' assets and liabilities," the IRS wrote. The IRS revised the CP 2000 notice to include a paragraph telling taxpayers that anyone claiming insolvency should include a breakdown of their total assets and liabilities.

[keepsmiling]

Good info.
Puke, how much was your forgiveness in the tax year? doesn't sound like you should have a concern.
Btw I am ready to puke also but I keep smiling anyway Gotta keep on keepin on.

[AngelinaCat]

Btw I am ready to puke also but I keep smiling anyway Gotta keep on keepin on.

You are right about that!

[ready2puke]

Keep its 45k between 2 Citi business cards..
Whats GV anyway?
I just check my Equifax report w/o the score and notice both BofA and the collection agency they sold it to are both on there claiming different amounts for the same account..I'm assuming the diff is interest and penalties..
Is that normal to have them both on there?
It looks like I owe 42k more than I do...
Thanks guys/gals..
PS thanks for the info Goingdown...