[CLBS] debt forgiveness tax question

[Steve McCrea]

This is what I give to my clients-- it is from IRS Publication 4681
" Subject: 1099
This is from the IRS’s instructions regarding cancelled debt:
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."

I also tell them "The person who prepares your taxes can help you."
Stephen B. McCrea
Attorney
PO Box 1501, Coeur d'Alene, ID 83816
sbmccrea at cda.twcbc.com
208 666-2594
stevemccrealaw.com




Original message
From: "Catherine Dullea" <cldlaw at gmail.com>
To: CLBS at admws.idaho.gov; 
Dated: 3/12/2015 9:15:49 AM
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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