taxes on debt settlement .. 1099c

[danohio2831]

i just want to post this starting a new thread. i have seen alot of posts that saying you owe the difference in the settlement at taxe time.

but i have seen nothing over " insolvency "

i would get a good tax accountant first of all or a attorney that might know

this is what i learnd and the key is to prove you were insolvent at the time of settlement
if you have a debt of 20,000 and they settle for 5,000, then you have to claim 15,000 as taxable income.
but

Insolvency means that your debts exceed the value of your assets. To figure out whether or not you were insolvent, you will have to total up your assets and your debts, including the debt that was settled or written off.

then u do not owe taxes on the 1099c

i am new and i am learning, so u need to look this oner on the internet and a lawyer,tax adviser, before you just take my word

let me know if i am wrong also

thanks

[SinkingFast]

Well,........... Let me say this about that,...........

By your definition we are indeed insolvent. We owe WAY more than we are worth by any stretch of anyone's wildest imagination.

At a Consult I tossed out, "We could do nothing. We don't have to file BK. We can just sit and wait for the SOL to expire and do nothing."

The attny said we'd never make it. The CC's would sue and garnish our wages. In our state that's allowed, up to 25% of gross.

So even if you get some creditors to settle, chances are not all of them will.

And in the multitude of Consults we've been thru, not one time has any attny mentioned the ability to settle credit debt and walk away from taxes owed on the forgiven debt which would now be considered income. So if we are indeed insolvent, which we are by your definition, and attnys aren't telling us this information, they are either blind and stupid, out for their own gain by getting client fees from us, or this is not at all applicable to our situation.

Maybe if a person is judgement proof. No property. No income. Maybe then, insolvency would apply. We ain't got much property, but we do have income. Our kids like to eat!

[aa06a47]

I think if you can pay them there 50 cents on the dollar or whatever, you would have a problem prooving "insolvency". Either way, I have not read anywhere that there is a way to get out of paying the tax difference. danohio, can you provide a website or link that discusses this.

[danohio2831]

http://www.irs.gov/pub/irs-pdf/p908.pdf

irs publication 908 page 21 lower right

Are there any potential tax consequences that are associated with settling my debts?
Expect your creditor's to send a 1099c for the amount of the difference between your balance and what they agreed to settle for. Fortunately there is an insolvency form that you or your accountant can provide to the IRS when filing your return. This insolvency form acts as a worksheet for your overall debt versus your overall assets. If you have more debt than you do assets you will be considered insolvent and not liable for any taxes. We encourage you to inquire with a professional accountant in reference to your situation. For additional reference to the insolvency exemption please see the instruction sheet for a 1099c. You should be able to locate it on the IRS website at www.irs.gov.

from

http://www.avoidbk.com/s_faq.html

[aa06a47]

http://www.irs.gov/pub/irs-pdf/p908.pdf
irs publication 908 page 21 lower right

Are there any potential tax consequences that are associated with settling my debts?
Expect your creditor's to send a 1099c for the amount of the difference between your balance and what they agreed to settle for. Fortunately there is an insolvency form that you or your accountant can provide to the IRS when filing your return. This insolvency form acts as a worksheet for your overall debt versus your overall assets. If you have more debt than you do assets you will be considered insolvent and not liable for any taxes. We encourage you to inquire with a professional accountant in reference to your situation. For additional reference to the insolvency exemption please see the instruction sheet for a 1099c. You should be able to locate it on the IRS website at www.irs.gov.

from
http://www.avoidbk.com/s_faq.html

Thanks for the website. I just quickly looked over it. Be careful when trying to apply this, I do not think it will let you exclude your home equity, IRA's/ 401k's...ect, that are exempted in the bk court. Just be careful.

Most people here cannot usually pay there bills, but without use of the many exemptions would for all practical purposes not be exactly "insolvent".

[danohio2831]

Thanks for the website. I just quickly looked over it. Be careful when trying to apply this, I do not think it will let you exclude your home equity, IRA's/ 401k's...ect, that are exempted in the bk court. Just be careful.

Most people here cannot usually pay there bills, but without use of the many exemptions would for all practical purposes not be exactly "insolvent".

i have read it will usually depend on the equaty in your home

[SinkingFast]

http://search.irs.gov/web/query.html...y&qt=insolvent

Page 21

Insolvency exclusion. You are insolvent when, and to the extent, your liabilities exceed the fair market value of your assets. Determine your liabilities and the fair market value of your assets immediately before the cancellation of your debt to determine whether or not you are insolvent and the amount by which you are insolvent.

Exclude from your gross income debt cancelled when you are insolvent, but only up to the amount by which you are insolvent. However, you must use the amount excluded to reduce certain tax attributes, as explained later under Reduction of Tax Attributes.

Page 22

Reduction of Tax Attributes If a debtor excludes canceled debt from income because it is canceled in a bankruptcy or during insolvency, he or she must use the excluded amount to reduce certain ‘‘tax attributes.’’
Tax attributes include the basis of certain assets and the losses and credits listed next. By reducing these tax attributes, [/b]tax on the canceled debt is in part postponed instead of being entirely forgiven.[/b] This prevents an excessive tax benefit from the debt cancellation.

If a separate bankruptcy estate was created, the trustee or debtor-in-possession must reduce the estate’s attributes (but not below zero) by the canceled debt. See Individuals under chapter 7 or chapter 11, later.