As if the daily grind called life isn’t difficult enough? The repercussions of a 1099-A / 1099-C notice of cancelled debt or abandonment is tough pill to swallow. Chances are the addition of more income to report via the notice may spell more money owed to the IRS of State tax agency.
A life event generating a 1099-A / 1099-C is usually a spawned product of negative scenario no one really wants to realize. What is most important for the debt forgiven taxpayer is the fact that there may be options to off set the additional reporting of income.
1099-A / 1099-C
See IRS Tax Topic 431 shares the following;
A debt includes any indebtedness whether you are personally liable or liable only to the extent of the property securing the debt. Cancellation of all or part of a debt that is secured by property may occur because of a foreclosure, a repossession, a voluntary return of the property to the lender, abandonment of the property, or a principal residence loan modification.
Gross income reporting
In general, if you are liable for a debt that is canceled, forgiven, or discharged, you will receive a Form 1099-C (PDF), Cancellation of Debt, and must include the canceled amount in gross income unless you meet an exclusion or exception. If you receive a Form 1099-C but the creditor is continuing to try to collect the debt, the creditor may not have canceled the debt. You should verify with the creditor your specific situation; you might not have cancellation of debt or taxable income.
You must report any taxable amount of a canceled debt for which you are personally liable, as ordinary income from the cancellation of debt, on Form 1040 (PDF) or Form 1040NR (PDF) and associated schedules, as advised in Publication 4681 (PDF), Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals). You must report the taxable amount of a taxable canceled debt whether or not you receive a Form 1099-C.
Caution: If your debt is secured by property and that property is taken by the lender in full or partial satisfaction of your debt, you are treated as having sold that property and may have a taxable gain or loss. The gain or loss on such a deemed sale of your property is an issue separate from whether any cancellation of debt income associated with that same property is includable in gross income. See Publication 544, Sales and Other Dispositions of Assets, and Publication 523, Selling Your Home for detailed information on reporting gain or loss from repossession, foreclosure or abandonment of property.
Pending the real world scenario, it would be best to involve a tax professional to review the tax period in which the 1099-A / 1099-C was issued and ask the question…Was this debt actually taxable?
DWK Tax Group and its team of battle tested Tax Attorneys and IRS Enrolled Agents have seen cases that are of similar nature and resolved accordingly. DWK Tax treats your IRS or State tax problem as if it were our own. We will not accept your case file unless we can save you money. Our reputation is one a sterling merit, “0” complaints 5 years plus. As licensed and credentialed tax professionals we are bound by a code of ethics governed by state and federal agencies.
Business operation protocol
Dial 1 – 8 6 6 – 2 2 6 – 6 1 0 2 for a 20 minute conversation we a call a forensic and detailed tax analysis. The taxpayer seeking assistance for 1099-A o 1099-C will be aware of the following important information upon the completion of the life changing conversation. We believe taxpayers should have all the facts via transparency and disclosure before making an educated decision to move forward or not. No hardcore sales tactics, no salesman, no outsourcing of tax preparation, no outsourcing of representation. Simply put, only tax professionals poised to resolve.
- A reasonable expectation of tax relief to be experienced.
- Timeline to apply and complete tax relief solution or solutions (Resolve Federal and State obligations simultaneously).
- The tax professional flat fee rate to complete.
- If DWK Tax Group affordable financing is necessary to acquire representation, the terms and conditions are disclosed.
It is not beyond our service standards to offer same day federal or state engagement to quiet a levy or collection order. DWK has a firm belief that Taxpayer’s should be able to live at their full earning potential regardless if taxes are owed or have been neglected.