okay i'm being audited or whatever it is called by the irs and i need help!!?

Question

okay in 2005 i was trying to let my vehicle go back because i was bed bound from surgery and couldn't work so the car company said they would nock off a certain percentage and if we could sell it for that much than it wouldn't be repossesed so we sold it that same day for 14000 they said they would send up paper work but they never did but i didn't think anything of it until now cause i'm being audited because of this. they are saying i ow taxes on the debt cancelation of 7000.00 dollars. well i have no clue how to fix this or if i can. do i really ow this money cause this is not my money so how can i owe money on money i never recieved. this doesn't make sense to me. can someone please help. what do i do cause i have no paper work from the car people do i need any. please help!!!!

i never recieved a 1099 as you called it if i did i would have brought it with me when h&r block did my taxes. and the last comment what do you mean for people like me i was 19 at the time and i have no clue about taxes and stuff. i didn't know that this debt cancellation was going to be considered an income.

Answer 1

What the other responders have failed to mention is that you may not owe tax on this at all. All you have to do is prove to the IRS auditor that you were insolvent at the time of the debt forgiveness. This means your liabilities exceeded your assets. Forgiven debt in these cases is not taxable.

If you had no income because you were "bed bound from surgery", it shouldn't be too hard to prove insolvency.

Another way to avoid taxation is if you declared bankruptcy. Debt forgiven in a bankruptcy proceeding is not taxable. Though, again, you do not have to be bankrupt to avoid tax, only insolvent.

Get IRS Form 982 for the year at issue, check box 1b, "Discharge of indebtedness to the extent insolvent (not in a title 11 case)", and give the auditor a statement showing your assets and liabilities as of the date of the indebtedness. You probably will not have any "tax attributes" to reduce in Part II, so you probably will not have to fill out that portion. As long as your assets are less than the liabilities on the date of forgiveness, you should be fine.

Form 982 is normally filed with the return for the year at issue, or within six months of the due date on an amended return, but IRS normally will allow this form to be filed at audit as well.

Good luck.

Answer 2

If they "forgave" or "Cancelled" some of the debt, you do have to pay taxes on that amount.... they should have given you a 1099.

Call the car company and ask for a copy of the 1099.

I dont see any way you will be able to get out of this.... work out payments with the IRS, and beg for forgiveness from the IRS. Be very nice, explain your situation to the auditor, and ask him to at least remove the penalties and interest if possible.

I would guess you owe around three grand. IF you made little or no money that you, then the standard deductions and medical expenses might have covered it, meaning you dont owe anything on the debt... you might need to find an accountant if they are playing nasty with you.

Answer 3

If a finance company 'forgives' debt then the amount they forgive is taxable income to you. So if you owed $21,000 on the car, they sold it for $14,000 then you pay taxes on $7000.

Now if you sold the car, paid off the loan in full then you owe no taxes. You'll need to clear up with the finance company why they sent a 1099 reporting forgiven dept to the IRS and not to you. If you sold the car and they forgave $7000 then you owe taxes on $7000. That's called THE LAW. You'll need to refile your return for that year and may owe more taxes. The IRS will be willing to set up a payment schedule with you; they also take cash or CC payments. Good luck.

Answer 4

The very reason you are being audited is that you apparently were issued a 1099 form to cover the debt foregiveness of $7000, and then failed to report this to the IRS as taxable income (which it is).

When the IRS gets such information and a cross check does not show it on your income tax return, they start asking questions.

The others are correct. The IRS is not comprised of ogres (at one time it WAS comprised of ogres, but that's all changed now). All you can do is explain to them what happened, and plead that you did not know that this was to be reported as taxable income. If they believe you, they may forgive any penalties for incorrect filing, but you will probably be required to file an amended income tax return for the year in which this debt was forgiven, and then pay the added tax due, plus interest. The IRS has payment programs for folks like you.

Answer 5

Calm down ...

First off, the IRS rarely send anybody to jail (Al Capone was the great exception, and clearly they sent him to jail because they thought he was a menace to society).

Instead, they fine you. That's not good when you have no money anyways, but at least its not behind bars.

Lack of paperwork is a problem, but not an unsurmountable one - talk to the company and make THEM reproduce the records prior to the audit. Since they have to keep them (if nothing else, because THEY occasionally get audited), it should be relatively straight forward.

Contrary to popular belief, the IRS is not evil. They aren't ogres - they're just pencil pushers who try to make everything line up.

They start getting frisky when you're talking about not paying money on millions of dollars of income, not $7000.00. The only reason that they are looking at you is that their computers noticed that something didn't add up.

Relax!