Help with tax question

[ody-burgle]

Hi All!

I just wanted to thank you all for the great advise (I've been a lurker since I first decided to file back in July 2005). I finally received the notification that my case was closed on January 23, 2006 (what a relief - done..done..done).

My question is regarding taxes, which I am doing on Turbo-Tax. Under miscellaneous income there is a spot where it asks if you received income from cancellation of a debt. If I go to the "explain this" it talks about if you have received a Form 1099-C because a debt has been cancelled. Well, I have not received a Form 1099-C. Is this because the case was not closed until 2006 or should I have received one becuase the case was discharged on November 23, 2005.

To sum it up - do they send a 1099-C based on the discharge or closed date.

Thanks so much for your help!!

[time4cake]

That is absolutely correct. If debt is discharged in bankruptcy it does not create a taxable transaction.

It is this way for the simple reason that the tax consequence associated with a one time release of the amount of debt involved in a typical bankruptcy would immediately put the taxpayer in an untenable situation with the IRS.

The federal government may be heartless, but apparently somebody up there in Washington understood the futility of attempting to collect tax from bankrupt individuals.

[Minnymouth]

My bankruptcy affected my income taxes in NO WAY..... no losses, no gains - no effect whatsoever...
Just file your taxes just like you do every year....

[anonymuse]

That is absolutely correct. If debt is discharged in bankruptcy it does not create a taxable transaction.

It is this way for the simple reason that the tax consequence associated with a one time release of the amount of debt involved in a typical bankruptcy would immediately put the taxpayer in an untenable situation with the IRS.

The federal government may be heartless, but apparently somebody up there in Washington understood the futility of attempting to collect tax from bankrupt individuals.

I think that's one reason to look at Chapter 13 versus some credit consolidation/debt relief.

I had totally misunderstood an article on MSN Money Central about this--I thought I'd still be on the hook for taxes on discharged debts.

I guess sometimes the government can do things right!

[Minnymouth]

Its Nice To Know That At Least They Did One Thing Right,,,,,, Huh............