"We will no longer attempt to collect the unpaid debt on your account", - 1099-C

[LadyInTheRed]

7. A discharge of indebtedness because of a decision or a defined policy of the creditor to discontinue collection activity and cancel the debt. A creditor's defined policy can be in writing or an established business practice of the creditor. A creditor's established practice to stop collection activity and abandon a debt when a particular nonpayment period expires is a defined policy. Enter “G” in Box 6 to report this identifiable event.

That quote is from an IRS publication. I posted it because of the confusion over codes (see toobee43's post #22). If your read the Reed case, you'll learn that the IRS has taken the position that a creditor can still collect a debt after filing a 1099-C.

[slvnomore]

GOT my 1099-C, Is this the smart and correct way to declare legal insolvency?

First of all I want to thank all of you for such great info, your generous time and wise council.

I always say when it comes to medical, legal or financial the person with the best info wins!

NOW THAT I HAVE RECEIVED MY 1099 -C (code G) for all 3 chase accounts, I have decided to declare INSOLVENCY instead of BK.

( no house, old car, few assets)

What are the step by step ways for me to do this?

1) DOWN LOAD IRS PUBLICATIONS - # 4681, # 982, #1040 ( not 1040 a,)

2) Worksheet of assets and liabilities (ANYONE HAVE AN EXAMPLE?)

3) FILL IT ALL OUT AND TAKE TO TAX ACCOUTANT.

QUESTIONS:

1) how does that affect my state taxes. ?

2) how does insolvency affect current payment plan with the IRS ?
and new taxes due? will it put me in a better position to renegotiate another payment plan?

3) how does this affect obama care monthly subsidy if you declare insolvency?

4) how does insolvency position me in a better place for negotiation of the remaining
debt of the remaining -16K from another oc suing me?

5) What is the exact date that I must use for insolvency if the 1099C are for 2013?
and how do you find out what the exact figures were for that date?

[tobee43]

i hope this helps, i spelled it out in this blog the best way i could:

http://www.bkforum.com/entry.php?229...99A-and-1099Cs


Revisiting the Questions of What to Do When you Rec 1099A and 1099Cs Edit Blog Entry

by
tobee43
02-25-2014 at 10:57 AM (73 Views)

if you settled a debt on a home or with a lender most likely you will rec one of two types of forms from the bank.

in some cases where property is involved one may receive both form 1099-A (Acquisition or Abandonment of Secured Property) and form 1099-C (Cancellation of Debt). the 1099Cs are usually used for credit card write offs or other types of third party lenders. in most cases when dealing with property the lenders issues or should issue the A's for the acquisition but can in some cases either or both can be issued. remember this : your gain or loss is reported on schedule D (of your tax forms), for homes that were personal residences. as a reminder, the IRS does not allow people to claim a loss on personal residences. any gain (and I have seen situations where a foreclosure results in gains being reported) on personal residences can be offset by the capital gains exclusion for a main home. so keep in mind just how much you put into the place through out the years!

while many want to rush to their attys to get some answers when they receive what seemingly are these scary 1099's one will usually come to find out that most attys know very little about taxes unless they are tax attys...even many accountants up until a few years ago rarely saw 1099 C A S etc Misc are more common and easier to deal with.

the tax form 982 covers and is the insolvency information you communicate to the irs. when and if you get either an A or C instructions for filling out form 982 can be found in IRS Publication 4681, including the insolvency worksheet, which also include instructions on how to fill out form 982: reduction of tax attributes due to discharge of indebtedness -off hand is as follows:


if you had a debt cancelled during the tax year, you generally need to report this as income on your return. however, if any of the following apply, you may be eligible to exclude the cancellation of debt from your income. you may exclude the cancellation of indebtedness if it was as follows:

1. discharge of qualified principal residence indebtedness
2. discharge of indebtedness in a title 11 case
3. discharge of indebtedness to the extent insolvent (not in a title 11 case)
4. discharge of qualified farm indebtedness
5. discharge of qualified real property business indebtedness

with most cases for people on this this forum, either 1,2, or 3 would be applicable.

[slvnomore]

thanks so much cool blog!

My specific questions:

QUESTIONS:

1) how does that affect my state taxes. ?

2) how does insolvency affect current payment plan with the IRS ?
and new taxes due? will it put me in a better position to renegotiate another payment plan?

3) how does this affect obama care monthly subsidy if you declare insolvency?

4) how does insolvency position me in a better place for negotiation of the remaining
debt of the remaining -16K from another oc suing me?

5) What is the exact date that I must use for insolvency if the 1099C are for 2013?
and how do you find out what the exact figures were for that date?

[LadyInTheRed]

slvnomore, comparing declaring insolvency on form 982 and filing bankruptcy is like comparing apples and oranges. When you declare insolvency on form 982, you are saying that the cancelled debt reported by a creditor on 1099C is not taxable income because at the time each debt was cancelled, you were insolvent. All it does is keep the IRS from taxing the income. "Declaring Insolvency" does not result in any discharge of debt or provide any protection from creditors.

With that said, I will try to answer your questions:

1) That depends on your state tax laws. Check with a CPA or research your state tax laws.

2) It doesn't affect any current payment plan. It only excludes cancelled debt from income in the year in which the debt was cancelled so that you don't have to pay federal income tax on the cancelled debt.

3) It doesn't, except that having the cancelled debt not included in income will make your income lower than if it were included in income, so that may increase your subsidy. But, I'm not sure if all income is included in determining the subsidy. You can try calling a "Navigator" for information on what kind of income is considered income for purposes of the subsidy. http://getcoveredillinois.gov/get-help/

4) The creditors don't care. Whether cancelled debt from other creditors is taxable income to you is irrelevant.

5) See IRS publication 4681: http://www.irs.gov/pub/irs-pdf/p4681.pdf. You must be insolvent immediately before the cancellation of debt. The date the debt was cancelled is the date of identifiable event in box 1. So, I believe you would use the day before that to determine if you were insolvent. Somebody posted in the last month or two about being told by the IRS that they used the wrong date. Look for that post to confirm what date to use. You need to prove you were insolvent at the time each debt was cancelled. The exact figures are based on all of your assets and liabilities.

[LadyInTheRed]

3) It doesn't, except that having the cancelled debt not included in income will make your income lower than if it were included in income, so that may increase your subsidy. But, I'm not sure if all income is included in determining the subsidy. You can try calling a "Navigator" for information on what kind of income is considered income for purposes of the subsidy. http://getcoveredillinois.gov/get-help/

I just found an explanation of how income is determined for ObamaCare: http://laborcenter.berkeley.edu/heal..._summary13.pdf

It starts with your adjusted gross income from your tax return. That would include cancelled debt if it were not excludable from income. So, if you don't file form 982 and check a box to say the cancelled debt is excluded from income, then you have to include the cancelled debt as "other income" which will increase your adjusted gross income and therefor possibly decrease your healthcare subsidy.

[tobee43]

slvnomore;614588]thanks so much cool blog!

My specific questions:

QUESTIONS:

1) how does that affect my state taxes. ?

the state of insolvency should and is also recognized by your state, however, you need to check how one files insolvency as each state may vary. it may just be you attach the 982 as well or something equal in ill.

2) how does insolvency affect current payment plan with the IRS ?
and new taxes due? will it put me in a better position to renegotiate another payment plan?

you would have discuss this with your atty, if you are in a chapter 13 and can still make you payments most likely it does not effect your pay, however, again, you should consult your atty for that information

3) how does this affect obama care monthly subsidy if you declare insolvency?

if i knew the answer to the question i would be number one on the mensa instead of two LOL!

4) how does insolvency position me in a better place for negotiation of the remaining
debt of the remaining -16K from another oc suing me?

oc? i'm not certain what that means, however, if you are filing or did file bk isn't that 16k included in your plan?

5) What is the exact date that I must use for insolvency if the 1099C are for 2013?
and how do you find out what the exact figures were for that date?

it's the year of the filing of your bk although it could apply to before and just after, you need to check with your atty.

[slvnomore]

slvnomore, comparing declaring insolvency on form 982 and filing bankruptcy is like comparing apples and oranges. When you declare insolvency on form 982, you are saying that the cancelled debt reported by a creditor on 1099C is not taxable income because at the time each debt was cancelled, you were insolvent. All it does is keep the IRS from taxing the income. "Declaring Insolvency" does not result in any discharge of debt or provide any protection from creditors.

THANK YOU SO MUCH!
I was looking into BK, then I got these 1099-C's from the one CC that was 75% of my debt.
so now it may make sense to file insolvency, and then fight the remaining 16K from another creditor, and use my bk nuke only as a last resort.

With that said, I will try to answer your questions:

1) That depends on your state tax laws. Check with a CPA or research your state tax laws.

2) It doesn't affect any current payment plan. It only excludes cancelled debt from income in the year in which the debt was cancelled so that you don't have to pay federal income tax on the cancelled debt.

I just wondered if it gave you any leverage as you were insolvent so would they take an offer in kind?

3) It doesn't, except that having the cancelled debt not included in income will make your income lower than if it were included in income, so that may increase your subsidy. But, I'm not sure if all income is included in determining the subsidy. You can try calling a "Navigator" for information on what kind of income is considered income for purposes of the subsidy. http://getcoveredillinois.gov/get-help/

thank you for this.

4) The creditors don't care. Whether cancelled debt from other creditors is taxable income to you is irrelevant.

My thinking here was they would scan the report see the charge offs, I would contact them after filing insolvency
and show them I can't pay more, would they be willing to settle for less. Either that or fight them if they ever serve me.

5) See IRS publication 4681: http://www.irs.gov/pub/irs-pdf/p4681.pdf. You must be insolvent immediately before the cancellation of debt. The date the debt was cancelled is the date of identifiable event in box 1. So, I believe you would use the day before that to determine if you were insolvent. Somebody posted in the last month or two about being told by the IRS that they used the wrong date. Look for that post to confirm what date to use. You need to prove you were insolvent at the time each debt was cancelled. The exact figures are based on all of your assets and liabilities.

The day before is very clear thank you.

[slvnomore]

thanks! to be clear, I was looking into filing BK, then I got 1099-C for 75% of my debt so now I am considering insolvency instead.

4) how does insolvency position me in a better place for negotiation of the remaining
debt of the remaining -16K from another oc suing me?

oc? i'm not certain what that means, however, if you are filing or did file bk isn't that 16k included in your plan?

My thinking here was they would scan the report see the charge offs, I might contact them after filing insolvency with a low settlement
and show them I can't pay more, would they be willing to settle for less as I declared insolvency, would that put me in a better negotiation
position? - Either that or fight them if they ever serve me. just a thought, Thanks!

[LadyInTheRed]

slvnomore, it will be much easier to follow the conversation if you use the quote feature to separate your comments from the comments you are responding to. I've edited your last two posts to make them easier to read. If you need to include comments in a long quote, you should at least put your comment in bold or a different color. But, if somebody wants to comment on your comment within a quote, when they try to use the "reply with quote" button, the text within the quote doesn't show up. There are 3 ways you can break up a long quoted section of text:

1. It "reply with quote" and copy the beginning quote and end quote and paste them at the beginning of each section of text you want to respond to.
2. Hit the multiple quote button to the right of the "reply with Quote" button several times, then hit the "reply with quote" button. That will quote the text several times. You can then delete text to make smaller quotes you can reply to.
3. Use the "reply with quote" button then move the "[/quote]" at the end of the quoted text to the end of the first portion you want to quote. Then, highlight the next portion of the quote you want to respond to and click the thought balloon icon to make the highlighted text a quote. It won't show the name of the person you quoted, but it will show a quote. To add the name of the person, copy the beginning quote tag.

The key is to understand that there is a beginning and ending tag to each quote. Each tag is in brackets. You can copy/cut and paste those tags to create multiple quotes. When you are done, use the "go advanced" button so you can preview your post to make sure it appears how you intend.

Go ahead and practice in this thread if you want. If you want your practice post deleted, just say so and I will delete it.

[LadyInTheRed]

My thinking here was they would scan the report see the charge offs, I might contact them after filing insolvency with a low settlement
and show them I can't pay more, would they be willing to settle for less as I declared insolvency, would that put me in a better negotiation
position? - Either that or fight them if they ever serve me. just a thought, Thanks!

Creditors might be more willing to settle if they know you have no assets and no income. But, I doubt claiming insolvency on form 982 has anything to do with their decision. For one thing, just because you were insolvent before the debt was cancelled, doesn't mean you were insolvent after the cancellation. The cancellation of the debt brings you closer to solvency. Even if you convince them you are insolvent, they may prefer to get a judgment against you in hopes that you eventually have income and assets. As far as fighting them after they serve you with a lawsuit, if the debt is valid, you are unlikely to do anything more than delay the judgment.

If you have $16K in debt, do you have at least $3,200 in cash to settle? That's 20% which is the best you can expect to do. And that kind of settlement is rare according to what I've read. It would be less expensive to pay a lawyer to file a Chap 7.

[slvnomore]

thank you for the tips and patience on how to repy for quotes.

1) although it may be cheaper to file BK, this new info changes my strategy, I now prefer to try the insolvency thing first,
and see if I have to file bk at all.

2) I have not been served for the 16K from the other OC. it will be my sole remaining debt if the 75% of my total debet is forgiven after insolvency. my strategy then would try to avoid until SOL, or settle if they try to sue. and save the BK if there is a medical catastrophe.
as has happened to 3 of my family immediate members with medical bills over 250K.

3) I see that now that declaring insolvency will not improve my negotiation position. either with the OC or with the IRS.
It was just a thought…. thanks for answering that for me !

[slvnomore]

Thank you so much,

one more question:

1) Can I still file a tax extension and have until october to declare insolvency and my 1099-C;s, without it hurting my insolvency filing in any way?