[CLBS] Tax liability for debt forgiveness

[Cameron Phillips]

Your client's offer was probably part of the settlement of
government's lawsuit against five banks.  (Biggest?  Worst?  Don't
know).

They have three years to finish their share of the required amount of
debt forgiveness,  and get a financial benefit for what they do in
year one.  Chase,  for example,  has to refinance $537 million worth
of loans, and do princpal reductions of $3.7 BILLION during the three
years.

This info came from an article in the SF Chronicle on Dec. 14, and a
conversation I had with Judy Morbeck in Congressman Labrador's
CDA office on that date.

If the recipient of a gift such as the one you are talking about is in
bankruptcy, I believe that his/her presumed state of insolvency would
eliminate any tax on the debt forgiven.  Outside of bankruptcy, I
don't know but I'll bet it would be fairly easy to find out.  Seems
likely that there's no tax.

The article I refer to   is attached, with any luck.

Cam Phillips

Cameron Phillips
Attorney at Law
924 Sherman Ave.
Coeur d' Alene, Idaho 83814
208  667 5437

On Dec 17, 2012, at 8:28 AM, "Ryan Dustin" <rdustin at ts-lawoffice.com> wrote:

> After filing but before discharge (or even the 341 meeting), Chapter 7
> clients received a letter from the holder of a completely "unsecured" second
> mortgage (house is worth less than balance on first mortgage) informing them
> the second mortgage will be forgiven unless they decline the offer. "Your
> second lien mortgage will be closed and the mortgage lien satisfied and
> released!"
>
>
>
> 1)      Does this happen often?
>
> 2)      What are the income tax consequences for them if they choose to
> accept the offer? Does the IRS insolvency exclusion apply (Form 982)?
>
>
>
> Ryan S. Dustin
>
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>
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