1099 and Chapter 13

[DavidW]

I had to file BK last January and consequently had to surrender 9 rental properties back to the lenders via foreclosure. Now, I'm receiving the 1099 forms for the balance of the properties minus the fare market value. My question is this: Do I have to pay the taxes on these properties?

I'm not really sure how all this works and my lawyer says that I need to contact a tax consultant.

Any advice would be appreciated.

Thank You.

[2ndChanceTx]

If you included the properties in the bankruptcy then it shouldn't be taxable. How you fix it now is another question. Probably try to get a corrected 1099 from the lender....

[DavidW]

If you included the properties in the bankruptcy then it shouldn't be taxable. How you fix it now is another question. Probably try to get a corrected 1099 from the lender....

A corrected 1099? Showing that I'm not responsible for the tax liability?

Will the lenders voluntarily do that, or do I need to involve my attorney?

[rrockinggramma]

If these properties were included on your creditor matrix and you are discharged, I would take the 1099's and that (creditor matrix and discharge copies) information and send it to the IRS. They will have to investigate of course but in the end, because you filed BK, you will be determined to be insolvent and will not owe any tax. Household finance did that to us and that is what the IRS told us to do and we did and they fixed it.

[DavidW]

If these properties were included on your creditor matrix and you are discharged, I would take the 1099's and that (creditor matrix and discharge copies) information and send it to the IRS. They will have to investigate of course but in the end, because you filed BK, you will be determined to be insolvent and will not owe any tax. Household finance did that to us and that is what the IRS told us to do and we did and they fixed it.

I'm still paying on my BK... and will be for the next 23 months or so. My BK won't be discharged until after my last payment correct?

[rrockinggramma]

However the IRS will have that information on file from the 1099's. I would call them and ask them what information they need to get it corrected. I don't think it will matter that you are still in your BK. In fact, it will help the situation. But my starting point would be the IRS.

[2ndChanceTx]

A corrected 1099? Showing that I'm not responsible for the tax liability?

Will the lenders voluntarily do that, or do I need to involve my attorney?

You can probably get it easier with your attorney's help. Call the creditor's accounting office and explain your situation. It is not uncommon to get corrected 1099's. I would call them first, then if you dont get what your looking for, involve your attorney.

JMHO.

[HHM]

There is absolutely NOTHING you have to do with the 1099's (directly).

1099's are a "report", nothing more. They DO NOT create a tax liability. All the lenders are doing is following IRS procedure...foreclosures are "sales" (taxable events) according to IRS rules, and therefore, the lender must report that event. "Corrected" 1099's are for actual mistakes; so for example, if the lender reported that the house sold for $200,000 when in fact it sold for $190,000, then you would want to get a corrected 1099. The lenders do not determine your tax liability, they only report a taxable event, thus you ARE NOT going to get a corrected 1099 from a lender showing no tax liability.

The issue you have to determine is if you have tax liability, but I am not certain of the answer to your dilemma...(1) you posted this in the chapter 13 forum, so I can only assume you filed chapter 13, if that is correct, and you recently filed, then your case has not been discharged. The exception to tax liability on forgiven debt has to do with "discharged" bankruptcies. Thus, the IRS may have a contingent claim until you case is discharged.

Thus, you may still need to fill out IRS form 982 and demonstrate insolvency. In any event, you will want to look at IRS Form 982 and the associated publication.

[2ndChanceTx]

I had to file BK last January and consequently had to surrender 9 rental properties back to the lenders via foreclosure. Now, I'm receiving the 1099 forms for the balance of the properties minus the fare market value. My question is this: Do I have to pay the taxes on these properties?

I'm not really sure how all this works and my lawyer says that I need to contact a tax consultant.

Any advice would be appreciated.

Thank You.

If you read the post. The 1099 is for the forgivness of the difference, not the sale of the property.

[HHM]

If you read the post. The 1099 is for the forgivness of the difference, not the sale of the property.

What is your point...I realize that, and that fact does not change what I said above. It is the SALE of the real estate at foreclosure that created the deficiency balance, that is the taxable event.

Regardless, there is nothing the OP can do on the 1099 side of things, he will more than likely have to file form 982 when he files his tax returns for 2007.

[2ndChanceTx]

Credit card companies would have to issue 1099's for all of the debt that they forgive through chapter 13, but they dont, because its not appropriate to report it. Form 982 looks like an option as well, but I still dont think they should have reported the forgiveness of the debt.

[HHM]

Foreclosures work a little differently than credit cards. The "foreclosure" creates the taxable event and therefore the lender is required to 1099 if there is a deficiency. BK does not create a taxable event for credit cards, and strictly speaking, in the BK context, the CC debt is not forgiven, especially in a 13 where the CC's will file a claim.

It sounds like, also, that these were non-recourse foreclosures since this person was 1099'd so quickly. Meaning, that the lenders are not entitle to make a claim for a deficiency, thus, at the time of foreclosure, any deficiency is, by default, forgiven debt (which is not the case in the Credit Card scenario).