Insolvancy, what do i do?

Question

A return was done in the office last year and it included a 1099-c, the prepared didn't include it because they thought they can do insolvancy by not claiming none of the debt. So now we have a irs letter, the full amount needs to be claimed now.. If we can't amended the return and the irs will correct the changes, what documents will be needed to prove the insolvancy is that's what the client wants to claim? What is the criteria to claim insolvancy? Where will the prove be, besides the clients word? What should i really do to solve this issue, in complience to the irs letter?

i've read that u can't include a form 982 after 6 months that it has been filed. this was a 2005 tax return which was filed april 2006 and the letter came a year later april 2007. So what will be prove to the irs to claim insolvancy if i can't file a form 982? will the letter solve the issue as prove of documentation?

Answer 1

You are insolvent if your total debts exceed the value of your assets at the time of the COD. There is no need to file bankruptcy to be considered insolvent!

Your tax preparer is incompetent! They should have included Form 982 with your return to substantiate the insolvency claim.

File an amended return with Form 982 attached. If you were truly insolvent at the time of the COD that will satisfy the IRS. Or return a copy of the IRS letter to them with a Form 982 attached.

Answer 2

Form 982 should have been filed with the return. This form is not in most software packages.

Without this, the IRS does not know about the insolvency.

You should be able to write a letter, explain the situation and attach the 982. Hopefully, this will resolve it.

Answer 3

Haves you filed bankrupcy, and had your filing approved by a judge? "Insolvent" doesn't just mean "I don't have the money available to pay these taxes" or "to pay this debt" - the person or company you owed might have cancelled the debt without you meeting the IRS rules for being insolvent.