forecloser and 1099

[fas917]

Hi,

I am preparing for Bk and per advices I let the bank foreclose my house on Nov, 16, 07, but last night I received a 1099 from the bank for 70k (forgiven debt??). The bought the house a year ago for 250k and did not take any HELOC. I had to foreclose due to loss of my wifes job. I was going to file taxes and use the tax return to hire an atty. Now it seems if I file with that 1099 I will end up paying over 10k to IRS. What should I do now?

My questions:

1. an I include the house and 1099 that they sent in the BK?

2. should I file for taxes w/o the 70k 1099? (say I did not get it ) and address the situation later

Thank you.

[HHM]

You need to review IRS Form 982 and the associated publication.

The IRS ALREADY has that 1099 (the IRS gets a copy). If you are in a position to file BK, then you are likely insolvent and therefore would not have to PAY income tax on that forgiven debt. However, you MUST address the issue in your tax filings.