2007-02-21 17:12:13 · 11 answers · asked by Anonymous in Business & Finance ➔ Taxes ➔ United States
I filed bankrupcy in March of 2004, it was discharged in February 2005.
When I filed my taxes in 2005 I didnt claim anything I filed banrupcy on as income.
In 2006 I got a letter from the IRS saying that when a creditor forgives me of a debt I have to claim it as income, and they charged me a penalty from my taxes being filed incorrectly.
2007-02-21 17:28:40 · update #1
If a debt is discharged in bankruptcy, it is not income. If a debt is settled by a creditor, the forgiven amount is. If such a situation applies to you, the creditor will issue a 1099.
2007-02-21 17:43:08 · answer #1 · answered by Rob D 5 · 0⤊ 2⤋
Without bankruptcy, when you settle a debt for less than the amount you owe, the forgiven portion is considered income that you must claim on your tax return.
I was not aware that getting debt relief through bankruptcy was considered forgiven debt. The IRS may have made a mistake (they do make one or two a year) which resulted in your letter. Contact them before paying any penalties and make sure they have the correct information.
2007-02-21 17:34:27 · answer #2 · answered by Brian G 6 · 0⤊ 1⤋
Canceled debt is taxable UNLESS you are insolvent at the time of the debt cancellation. While you don't have to file bankruptcy to be considered insolvent for the purposes of avoiding tax on the canceled debt, a debt canceled through bankruptcy would be prima facia evidence of insolvency.
There should be a name and contact number on the letter from the IRS. Call them. A copy of your bankruptcy paperwork should be all you need to prove insolvency and get the IRS off your back.
2007-02-21 23:31:30 · answer #3 · answered by Bostonian In MO 7 · 2⤊ 0⤋
Yes, a forgiven debt is taxable income. The bank(s) that you settled with will issue a Form 1099-C in the year that the debt is forgiven. That is the year that you report the COD income. And yes, it goes on line 21 of Form 1040.
2016-05-23 22:12:07 · answer #4 · answered by Anonymous · 0⤊ 0⤋
Yes a cancellation of debt is considered income. Even if the company did not send you a 1099-C they reported it to the IRS. You can thank the Republican congress which passed the new bankruptcy laws which favor the banks and other lenders.
2007-02-21 23:44:42 · answer #5 · answered by mrfoxhorn 5 · 0⤊ 1⤋
No, you do not have to pay taxes on debts discharged in bankruptcy.
Send the IRS a copy of your discharge in bankruptcy and call your bankruptcy lawyer to see if you should seek action against the person/company who sent in the 1099C.
2007-02-22 07:29:25 · answer #6 · answered by woodluvto 2 · 0⤊ 0⤋
Short answer: In most cases, yes, you will pay taxes on forgiven debt.
Filing bankruptcy is different from discharging a bankruptcy.
2007-02-21 17:17:07 · answer #7 · answered by paynemdp 2 · 0⤊ 0⤋
No. The bankruptcy wiped out the 1099-C Cancellation of Debt if that creditor was included. All you need to do is to indicate to the IRS that debt was included in the bankruptcy.
2007-02-21 17:42:47 · answer #8 · answered by Anonymous · 2⤊ 1⤋
Yes you do. On our screens that we have at H & R Block, there is a space for this at box 21. You should have received a tax document and if you did, you will need to report it. Call the IRS to make sure, but I'm fairly certain you do have to report it.
2007-02-22 00:01:14 · answer #9 · answered by perleo 3 · 0⤊ 1⤋
I've been a bookkeeper and tax preparer for a number of years and that's not on the tax forms or in any of the classes I've studied over the years. You should be aware that it's possible you won't actually receive tax refunds shown on the tax return, depending on who you owe. I'm certain that back child support comes right out of tax refunds, and there could be other garnishments placed on wages and so on, so you'll want to check it out thoroughly.
2007-02-21 17:24:09 · answer #10 · answered by Anonymous · 0⤊ 3⤋