Taxation of Forgiven Debt: The 1099C & You

Often people fall on hard times and stop paying on credit cards. After a while the account may go to an outside debt collector who might offer a settlement of the debt for 30-40% of theoriginal sum. Once this is paid, the debtor often thinks the matter is closed, but it is not! It is very likely that the creditor will issue a 1099-C. This is a notice to IRS of the forgiven debt. If the debtor does not address this on his return he may get an IRS bill a year or two later with penalties and interest.

A foreclosure on a home may also result in a 1099-C from the mortgage lender if the property is sold for less than the amount of the loan. In this instance, a person loses their home and may also face a tax bill. Usually, the bill comes many months after the tax return was filed as a result of an IRS document matching program. This "under-reporter" notice brings grief to the taxpayer.

The key issue is whether or not the debtor was insolvent. If they were insolvent, it may not be taxable depending on the circumstances. There is an "Insolvency exclusion." You are insolvent when, and to the extent, your liabilities exceed the fair market value of your assets. So it is possible none of your forgiven debt is taxable or it is possible that all or only a portion of it is includable in income.

If you get a 1099-C, don't ignore it. Have a tax professional do your return and they can help you determine how much of the 1099-C is taxable. If you get a letter from IRS on a 1099-C you left off your return, get help ASAP. Otherwise, IRS might file a Federal Tax Lien and take action.

Look for a CPA, Enrolled Agent, Accredited Tax Advisor, Accredited Tax Preparer, or Tax Attorney to help you with serious tax issue. You may call the IRS at 1-800-829-1040 for help as well. Websites you can check out include: www.irs.gov;www.naea.org; www.nsacct.org; and www.exirsman.com.

James Robert Coleman, E.A., A.T.A.
Enrolled Agent & Accredited Tax Advisor
Member: National Association of Enrolled Agents
Former IRS Revenue Officer, GS-11
http://www.exirsman.com

MORE RESOURCES:

Taxing Times - Forbes

table border=0 width= valign=top cellpadding=2 cellspacing=7trtd width=80 align=center valign=topfont style=font-size:85%;font-family:arial,sans-serifa href=http://news.google.com/news/url?sa=Tct=us/0i-0fd=Rurl=http://www.topnews.in/obama-weak-economy-strong-foreign-policy-says-brit-paper-271475cid=1256027098ei=8kLzSKaxAZnK8ASN6Pl8usg=AFQjCNH0XI0V66joRpW2c5QjpGsIZIw7Mgimg src=http://news.google.com/news?imgefp=97RuRHCJLIUJimgurl=www.topnews.in/files/Barack-Obama1.jpg width=80 height=63 alt= border=1brfont size=-2TopNews/font/a/font/tdtd valign=top class=jfont style=font-size:85%;font-family:arial,sans-serifbrdiv style=padding-top:0.8em;img alt= height=1 width=1/divdiv class=lha href=http://news.google.com/news/url?sa=Tct=us/0-0fd=Rurl=http://www.forbes.com/opinions/2008/10/12/taxes-mccain-obama-oped-cx_kb_1013bowman.htmlcid=1256027098ei=8kLzSKaxAZnK8ASN6Pl8usg=AFQjCNG0U_2BbsYLqw9dTH8XOn7QaxciIQTaxing Times/abrfont size=-1font color=#6f6f6fForbes,nbsp;NYnbsp;-/font nobr8 hours ago/nobr/fontbrfont size=-1In a September Gallup/USA Today poll, a third of Americans said their btaxes/b would increase if John McCain were elected president. b.../b/fontbrfont size=-1a href=http://news.google.com/news/url?sa=Tct=us/0-1fd=Rurl=http://www.youtube.com/watch%3Fv%3D3ShDaWICNZ4cid=1256027098ei=8kLzSKaxAZnK8ASN6Pl8usg=AFQjCNG0xsxAfs2Dm2A3xEWejCSTVRuo3gVideo: VP Debate - Tax Policies: Why are your tax policies not .../a font size=-1 color=#6f6f6fnobrCSPAN/nobr/fontobject width=448 height=356param name=movie value=http://www.youtube.com/v/3ShDaWICNZ4/paramparam name=wmode value=transparent/paramembed src=http://www.youtube.com/v/3ShDaWICNZ4type=application/x-shockwave-flashwmode=transparentwidth=448height=356/embed/objectbr/fontfont size=-1a href=http://news.google.com/news/url?sa=Tct=us/0-2fd=Rurl=http://www.cbsnews.com/blogs/2008/10/12/politics/fromtheroad/entry4516350.shtmlcid=1256027098ei=8kLzSKaxAZnK8ASN6Pl8usg=AFQjCNEw0JeIhffauqIsTScIoRhXofne6AOhio Crowd Helps With Obama#39;s Debate Prep/a font size=-1 color=#6f6f6fnobrCBS News/nobr/font/fontbrfont size=-1a href=http://news.google.com/news/url?sa=Tct=us/0-3fd=Rurl=http://www.chicagotribune.com/news/opinion/chi-0ped1012chapmanoct12,0,7206840.columncid=1256027098ei=8kLzSKaxAZnK8ASN6Pl8usg=AFQjCNH3g7YHP6RHjNGatca86067OHUkXgFiscal Fairyland/a font size=-1 color=#6f6f6fnobrChicago Tribune/nobr/font/fontbrfont size=-1 class=pa href=http://news.google.com/news/url?sa=Tct=us/0-4fd=Rurl=http://online.wsj.com/article/SB122385651698727257.html%3Fmod%3Dgooglenews_wsjcid=1256027098ei=8kLzSKaxAZnK8ASN6Pl8usg=AFQjCNFvQ0hwz2q1z9mJZ3hVDTpFk1bu7AnobrWall Street Journal/nobr/anbsp;- a href=http://news.google.com/news/url?sa=Tct=us/0-5fd=Rurl=http://www.edmontonsun.com/Comment/2008/10/12/7060496-sun.htmlcid=1256027098ei=8kLzSKaxAZnK8ASN6Pl8usg=AFQjCNHl3HfbBGOGN6DDd83pg69tZS_lownobrEdmonton Sun/nobr/a/fontbr/font class=p size=-1a class=p href=http://news.google.com/news?sourceid=navclientie=ISO-8859-1rls=GGLG,GGLG:2005-22,GGLG:enncl=1256027098hl=ennobrall 519 news articles/nobr/a/font/div/font/td/tr/table

The Savings Game: Taxes inevitable when drawing from an annuity - Salt Lake Tribune

• Time is right to raise taxes on gasoline, says author of ... - MLive.com

Jesuits call for higher taxes on better-off - Irish Times

table border=0 width= valign=top cellpadding=2 cellspacing=7trtd valign=top class=jfont style=font-size:85%;font-family:arial,sans-serifbrdiv style=padding-top:0.8em;img alt= height=1 width=1/divdiv class=lha href=http://news.google.com/news/url?sa=Tct=us/3-0fd=Rurl=http://www.irishtimes.com/newspaper/ireland/2008/1013/1223680464929.htmlcid=1257185349ei=8kLzSKaxAZnK8ASN6Pl8usg=AFQjCNGL8eCrWem-WeXjc2049ENyQbzFJQJesuits call for higher btaxes/b on better-off/abrfont size=-1font color=#6f6f6fIrish Times,nbsp;Irelandnbsp;-/font nobr12 hours ago/nobr/fontbrfont size=-1He said quot;increases in indirect btaxes/b must be targeted on non-essential items, since such btaxes/b take no account of income and therefore have greatest impact b.../b/fontbrfont size=-1a href=http://news.google.com/news/url?sa=Tct=us/3-1fd=Rurl=http://www.rte.ie/money/budget2009/stories/2008/1013/budget.htmlcid=1257185349ei=8kLzSKaxAZnK8ASN6Pl8usg=AFQjCNGEcqBZgQSUE_v-kzCqXqRb3BevZwCall for Budget to protect vulnerable/a font size=-1 color=#6f6f6fnobrRTE.ie/nobr/font/fontbrfont class=p size=-1a class=p href=http://news.google.com/news?sourceid=navclientie=ISO-8859-1rls=GGLG,GGLG:2005-22,GGLG:enncl=1257185349hl=ennobrall 3 news articles/nobr/a/font/div/font/td/tr/table

Italian council offers Mafia whistleblowers exemption from taxes - Telegraph.co.uk

Something stable in the economy: Oregon property taxes - The Oregonian - OregonLive.com

yLowering Taxes Top Priority for Brown - The Ledger

table border=0 width= valign=top cellpadding=2 cellspacing=7trtd valign=top class=jfont style=font-size:85%;font-family:arial,sans-serifbrdiv style=padding-top:0.8em;img alt= height=1 width=1/divdiv class=lha href=http://news.google.com/news/url?sa=Tct=us/6-0fd=Rurl=http://www.theledger.com/article/20081012/NEWS/810060397/1134%3FTitle%3DyLowering_Taxes_Top_Priority_for_Browncid=1256789646ei=8kLzSKaxAZnK8ASN6Pl8usg=AFQjCNGhN02L3WdhQU42olOXQ4kY80twiAyLowering bTaxes/b Top Priority for Brown/abrfont size=-1font color=#6f6f6fThe Ledger,nbsp;FLnbsp;-/font nobr7 hours ago/nobr/fontbrfont size=-1quot;My vision is to spend time with constituents and see what they have to say about btaxes/b and overgrowth,quot; Brown said. Brown said his membership in a third b.../b/fontbrfont size=-1a href=http://news.google.com/news/url?sa=Tct=us/6-1fd=Rurl=http://www.theledger.com/article/20081012/NEWS/810060398/1134%3FTitle%3DJohnson_Seeks_Another_Term_on_Commissioncid=1256789646ei=8kLzSKaxAZnK8ASN6Pl8usg=AFQjCNHIeJoItGvrAqntce3DEXFT6OhnuAJohnson Seeks Another Term on Commission/a font size=-1 color=#6f6f6fnobrThe Ledger/nobr/font/fontbrfont class=p size=-1a class=p href=http://news.google.com/news?sourceid=navclientie=ISO-8859-1rls=GGLG,GGLG:2005-22,GGLG:enncl=1256789646hl=ennobrall 4 news articles/nobr/a/font/div/font/td/tr/table

County officials study uranium taxes - Jamestown Sun

table border=0 width= valign=top cellpadding=2 cellspacing=7trtd valign=top class=jfont style=font-size:85%;font-family:arial,sans-serifbrdiv style=padding-top:0.8em;img alt= height=1 width=1/divdiv class=lha href=http://news.google.com/news/url?sa=Tct=us/7-0fd=Rurl=http://www.jamestownsun.com/ap/index.cfm%3Fpage%3Dview%26id%3DD93P5NNO0cid=1256968987ei=8kLzSKaxAZnK8ASN6Pl8usg=AFQjCNG-o9hFOMmYn47mAkqfAh_sBK5EJgCounty officials study uranium btaxes/b/abrfont size=-1font color=#6f6f6fJamestown Sun,nbsp;NDnbsp;-/font nobr16 hours ago/nobr/fontbrfont size=-1Other states#39; btaxes/b are similar to the current oil extraction tax with varying formulas, he said. quot;That would be something we would have to study and find b.../b/fontbrfont size=-1a href=http://news.google.com/news/url?sa=Tct=us/7-1fd=Rurl=http://www.kxmc.com/News/284928.aspcid=1256968987ei=8kLzSKaxAZnK8ASN6Pl8usg=AFQjCNFnIMDQPIEhgj-SeX11F8X5Vkp5RQCounty officials studying uraniuim btaxes/b | KXNet.com North Dakota News/a font size=-1 color=#6f6f6fnobrKXMC/nobr/font/fontbrfont class=p size=-1a class=p href=http://news.google.com/news?sourceid=navclientie=ISO-8859-1rls=GGLG,GGLG:2005-22,GGLG:enncl=1256968987hl=ennobrall 12 news articles/nobr/a/font/div/font/td/tr/table

Truth about taxes - Green Valley News

table border=0 width= valign=top cellpadding=2 cellspacing=7trtd width=80 align=center valign=topfont style=font-size:85%;font-family:arial,sans-serifa href=http://news.google.com/news/url?sa=Tct=us/8i-0fd=Rurl=http://online.wsj.com/article/SB122315505846605217.html%3Fmod%3Dspecial_page_campaign2008_mostpopcid=1257252955ei=8kLzSKaxAZnK8ASN6Pl8usg=AFQjCNE-P_MRGSDIJV-PSmZ2Lt0o9BV80wimg src=http://news.google.com/news?imgefp=pSFZ6-HmEkoJimgurl=s.wsj.net/public/resources/images/NA-AS979_HEALTH_D_20081005202208.jpg width=80 height=53 alt= border=1brfont size=-2Wall Street Journal/font/a/font/tdtd valign=top class=jfont style=font-size:85%;font-family:arial,sans-serifbrdiv style=padding-top:0.8em;img alt= height=1 width=1/divdiv class=lha href=http://news.google.com/news/url?sa=Tct=us/8-0fd=Rurl=http://www.gvnews.com/articles/2008/10/12/letters/letters05.txtcid=1257252955ei=8kLzSKaxAZnK8ASN6Pl8usg=AFQjCNFc21WXBQJjrnuyVSv2HRVIyRdnDwTruth about btaxes/b/abrfont size=-1font color=#6f6f6fGreen Valley News,nbsp;AZnbsp;-/font nobr9 hours ago/nobr/fontbrfont size=-1Biden and others say it is going to raise btaxes/b on those making more than $250000 per year and everyone else will get a tax break. b.../b/fontbrfont size=-1a href=http://news.google.com/news/url?sa=Tct=us/8-1fd=Rurl=http://www.dailyprogress.com/cdp/business/local/article/cbj_part_1_social_security_is_still_broken/29254/cid=1257252955ei=8kLzSKaxAZnK8ASN6Pl8usg=AFQjCNHcQu8MQPLHiCpVhuvZguLQV9Ji0ACBJ: Part 1: Social Security Is Still Broken/a font size=-1 color=#6f6f6fnobrCharlottesville Daily Progress/nobr/font/fontbrfont size=-1a href=http://news.google.com/news/url?sa=Tct=us/8-2fd=Rurl=http://www.miamiherald.com/news/politics/AP/story/723011.htmlcid=1257252955ei=8kLzSKaxAZnK8ASN6Pl8usg=AFQjCNFI50SK88XKwL-YkuM9abvBxjeIzQTime works against candidates on Social Security, Medicare fixes/a font size=-1 color=#6f6f6fnobrThe Miami Herald/nobr/font/fontbrfont size=-1a href=http://news.google.com/news/url?sa=Tct=us/8-3fd=Rurl=http://blogs.tnr.com/tnr/blogs/the_plank/archive/2008/10/06/mccain-i-m-not-raising-taxes-i-m-cutting-medicare.aspxcid=1257252955ei=8kLzSKaxAZnK8ASN6Pl8usg=AFQjCNFGWWA6CFmXU7NEoKFEnRvzub5XzwMcCain: I#39;m Not Raising bTaxes/b. I#39;m Cutting Medicare!/a font size=-1 color=#6f6f6fnobrThe Plank on TNR.com/nobr/font/fontbrfont size=-1 class=pa href=http://news.google.com/news/url?sa=Tct=us/8-4fd=Rurl=http://www.hastingsstargazette.com/articles/index.cfm%3Fid%3D18624%26section%3DOpinioncid=1257252955ei=8kLzSKaxAZnK8ASN6Pl8usg=AFQjCNEg9f7l7s3ma04HmUBynDpKPATMtwnobrHastings Star Gazette/nobr/anbsp;- a href=http://news.google.com/news/url?sa=Tct=us/8-5fd=Rurl=http://www.advocateweekly.com/ci_10672130cid=1257252955ei=8kLzSKaxAZnK8ASN6Pl8usg=AFQjCNHDLhellhQflgSnDWLOkP7SsUTtJwnobrAdvocate Weekly/nobr/a/fontbr/font class=p size=-1a class=p href=http://news.google.com/news?sourceid=navclientie=ISO-8859-1rls=GGLG,GGLG:2005-22,GGLG:enncl=1257252955hl=ennobrall 83 news articles/nobr/a/font/div/font/td/tr/table

McCain weighs proposal to cut taxes on investments - The Associated Press

table border=0 width= valign=top cellpadding=2 cellspacing=7trtd width=80 align=center valign=topfont style=font-size:85%;font-family:arial,sans-serifa href=http://news.google.com/news/url?sa=Tct=us/9i-0fd=Rurl=http://ap.google.com/article/ALeqM5g6OTvvWxmdp5Q2IvjYry89Ikh1YwD93P5D7G0cid=0ei=8kLzSKaxAZnK8ASN6Pl8usg=AFQjCNHiC8-ww5FEiBf5_rS25PTZjw_H6wimg src=http://news.google.com/news?imgefp=EX4QvRLt9toJimgurl=ap.google.com/media/ALeqM5gYVSrzJQDmubxujW7uBzM2murcCQ width=80 height=58 alt= border=1brfont size=-2The Associated Press/font/a/font/tdtd valign=top class=jfont style=font-size:85%;font-family:arial,sans-serifbrdiv style=padding-top:0.8em;img alt= height=1 width=1/divdiv class=lha href=http://news.google.com/news/url?sa=Tct=us/9-0fd=Rurl=http://ap.google.com/article/ALeqM5g6OTvvWxmdp5Q2IvjYry89Ikh1YwD93P5D7G0cid=0ei=8kLzSKaxAZnK8ASN6Pl8usg=AFQjCNHiC8-ww5FEiBf5_rS25PTZjw_H6wMcCain weighs proposal to cut btaxes/b on investments/abrfont size=-1font color=#6f6f6fThe Associated Pressnbsp;-/font nobr16 hours ago/nobr/fontbrfont size=-1C., said McCain was considering policy proposals that would cut btaxes/b on investments. quot;I think it goes along the lines of now#39;s the time to lower tax rates b.../b/font/div/font/td/tr/table

Taxes - Google News

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