[CLBS] debt forgiveness tax question

[Sarah Bratton]

The Mortgage Forgiveness Debt Relief Act had a sunset clause that was extended through 2014. However, there is a separate bankruptcy exclusion that is still available. See IRS Publication 4681 which as to bankruptcy specifically says.

Bankruptcy
Debt canceled in a title 11 bankruptcy case is
not included in your income. A title 11 bankruptcy
case is a case under title 11 of the United
States Code (including all chapters in title 11
such as chapters 7, 11, and 13), but only if the
debtor is under the jurisdiction of the court and
the cancellation of the debt is granted by the
court or occurs as a result of a plan approved
by the court.
How to report the bankruptcy exclusion. 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
1e do not apply to a cancellation that occurs in
a title 11 bankruptcy case. Enter the total
amount of debt canceled in your title 11 bankruptcy
case on line 2. You must also reduce
your tax attributes in Part II of Form 982 as explained
under Reduction of Tax Attributes, later.



Sarah B. Bratton, Attorney
Martelle, Bratton and Associates
sarah at martellelaw.com
Eagle, ID 83616



-----Original Message-----
From: CLBS [mailto:clbs-bounces at admws.idaho.gov] On Behalf Of Randal French
Sent: Thursday, March 12, 2015 10:27 AM
To: Bruce M. Perry; cldlaw at gmail.com; CLBS at admws.idaho.gov
Subject: Re: [CLBS] debt forgiveness tax question

Did the exclusion from taxable income for debt forgiveness end at the end of 2013?  I was thinking there was a sunset clause on that law.

-----Original Message-----
From: CLBS [mailto:clbs-bounces at admws.idaho.gov] On Behalf Of Bruce M. Perry
Sent: Thursday, March 12, 2015 10:22 AM
To: cldlaw at gmail.com; CLBS at admws.idaho.gov
Subject: Re: [CLBS] debt forgiveness tax question



It is not taxable but your client should file Form 982 with their tax return.

Bruce M. Perry

Integra Law Group 

950 W. Bannock, 11th Floor
PO Box 1870
Boise, ID 83701

T/   208.386.9000
C/   208.867.9000
F/   208.386.9900

integralawgroup.com

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-----Original Message-----
From: CLBS [mailto:clbs-bounces at admws.idaho.gov] On Behalf Of Catherine Dullea
Sent: Thursday, March 12, 2015 10:16 AM
To: CLBS at admws.idaho.gov
Subject: [CLBS] debt forgiveness tax question

Dear Listmates:

I was under the impression that the feds had instituted a moratorium against considering debt forgiveness as income for taxing purposes for the last few years.  I filed a chapter 7 for some clients last year.  We listed a Chase debt.  Evidently Chase charged off the debt and sent them a 1099 for the year 2013.  Now the IRS wants $615 in taxes regarding the cancellation of debt.  Any wisdom?

--Katie Dullea

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