2007-10-13 15:51:57 · 5 answers · asked by richard r 1 in Business & Finance ➔ Taxes ➔ United States
An amount was reported to IRS by fianance company on a cancelation of debt . I recently received a notice from the IRS of tax increase for my 2005 tax return can they do that after 2 yrs debt was removed from credit report would i have to pay?
2007-10-13 16:34:32 · update #1
IRS treats Debt cancellation as income, and the finance company can take deduction for this:
Generally, if a debt you owe is canceled or forgiven, other than as a gift or bequest, you must include the canceled amount in your income. A debt includes any indebtedness for which you are liable or which attaches to property you hold.
If the debt is a nonbusiness debt, report the canceled amount on Form 1040, line 21.
2007-10-13 18:09:10 · answer #1 · answered by MukatA 6 · 1⤊ 0⤋
Yes. You had unreported income or gain really. You had a cancellation of a debt that caused a loss to the company that gave it, and you still owe for the taxes.
The IRS usually only goes back about 3 years, if they go back further, it is because they may have stumbled on to something.
2007-10-13 18:33:55 · answer #2 · answered by Wood Smoke ~ Free2Bme! 6 · 0⤊ 0⤋
Are you asking whether you can be taxed on the amount of debt over the value of the repossessed car? If so, yes, in the year of repossession. Your credit report has nothing to do with it.
2007-10-13 16:10:56 · answer #3 · answered by mattapan26 7 · 1⤊ 0⤋
It sounds like you have income from discharge of indebtedness. If the lender who you owed money too gives up its right to attempt to collect, you have taxable income.
2007-10-13 17:11:57 · answer #4 · answered by Anonymous · 1⤊ 0⤋
No as long as its been removed from your credit report,your fine.
2007-10-13 15:57:02 · answer #5 · answered by so curious 3 · 0⤊ 1⤋