How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask socrateaser Your Own Question

socrateaser
socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 34394
Experience:  Attorney and Real Estate Broker -- Retired (mostly)
10097515
Type Your Bankruptcy Law Question Here...
socrateaser is online now
A new question is answered every 9 seconds

Do I have to file for bankruptcy prior to the issue of 1099

Resolved Question:

Do I have to file for bankruptcy prior to the issue of 1099 in order to avoid the taxable situation? Can I file for bankruptcy after I receive a 1099 and dismiss the income?
Submitted: 4 years ago.
Category: Bankruptcy Law
Expert:  socrateaser replied 4 years ago.

Under IRC §108(a)(1), cancellation of debt income (1099c) is excluded from taxation if (1) the discharge of indebtedness occurs in title 11 (bankruptcy) cases, or (2) if the discharge occurs when the taxpayer is insolvent and the amount excluded is not more than the amount by which the taxpayer is insolvent.

 

BotXXXXX XXXXXne, if you file bankruptcy before your debt is "charged off" by the creditor, you will not have to demonstrate your insolvency to the bankruptcy court.

 

Hope this helps.

 

Terms and Conditions: By your continuing in this conversation with me, or by your clicking “Accept”, you are expressly agreeing to all of the following: (1) our communication is for entertainment purposes only; (2) you are not consulting me in my professional capacity as an attorney; (3) you do not seek to establish an attorney-client relationship with me, nor do I with you; (4) you will not rely on anything I say and you will obtain appropriate legal counsel via a traditional/office consultation with an attorney licensed to practice in the jurisdiction where your legal issue arises (and you may not use our communication to avoid taxpayer penalties imposed by the U.S. Dept. of Treasury); (5) by communicating with me in this public forum you are irrevocably waiving any right to privacy, confidentiality and attorney-client privilege concerning the matters discussed. You further separately declare that any payment made by you is not consideration for this contract, nor offered for any services rendered by me on your behalf, but rather is made in genuine admiration and respect for my desire to help others. If you do not agree with these terms and conditions, then you must advise me immediately.

Customer: replied 4 years ago.
Can I file after the debt is being discharge and still claims to be insolvent? therefore avoid the tax liability of the 1099
Expert:  socrateaser replied 4 years ago.

That's the #2 factor I already explained You woulkd have to sue the IRS in bankruptcy court and show that you were insolvent and that th debt should be discharged.

 

Some fun, huh?

 

Customer: replied 4 years ago.
I am not sure I quite understand. My dilemma is that my income property just got sold at foreclosure sale and I don't know when the 1099 will be issued. I would like to file for bankruptcy but my wife only lost her job last month so our ave income is still too high. And the definition of insolvent is different between bankruptcy court and the IRS. for bankruptcy court, my retirement account is safe, but for IRS everything is in play. I don't want to lose all y retirement income to the IRS.
Expert:  socrateaser replied 4 years ago.

The date that the 1099c is issued is irrelevant. What matters is the date at which the debt becomes uncollectable by the creditor. That is a question of fact for any debt. But, for a foreclosure sale in California, a first trust deed sold at a foreclosure sale is uncollectable at the instant of foreclosure. Whereas an second trust deed equity credit line on the same property is not uncollectable until the creditor has taken reasonable steps to collect (i.e., sued for a deficiency judgment and then found the debtor without sufficient assets to pay the judgment), or the debtor files for bankruptcy protection.

 

Re the definition of insolvent and retiremnt accounts, "a taxpayer claiming to be insolvent for purposes of S 108(a)(1)(B) and challenging the Commissioner's determination of deficiency must prove by a preponderance of the evidence that he or she will be called upon to pay an obligation claimed to be a liability and that the total amount of liabilities so proved exceed the fair market value of his or her assets." Merkel v. Commissioner of Internal Revenue, 192 F.3d 844 (9th Cir. 09/17/1999) In other words, a retirement account with sufficient value to pay a debt, though exempt from the requirement of being used to pay that debt, is nevertheles avaialble to pay that debt, and therefore, the debtor is not insolvent for the purposes of IRC 108(a)(1)(B).

 

Note: I mistated the law eariler by saying that you would have to sue the IRS in bankruptcy court. The process is that you would not declare the 1099c income on your return and then have to sue the IRS in either Tax Court or Federal District Court to avoid the tax liability, if the IRS found that you were not insolvent at the relevant date.



Edited by socrateaser on 2/6/2010 at 7:07 AM EST
Customer: replied 4 years ago.
I reside in California, but the property is in FL. Do you know if that is much different from CA from your scenario?
Expert:  socrateaser replied 4 years ago.
Yes. Big difference. Florida permits deficiency judgments on all mortgages. That's actually good for you in this instance, because the debt is still collectable at this time.
Customer: replied 4 years ago.
Sorry to keep this question going for so long ... how do I account for this uncollectable date now?
Expert:  socrateaser replied 4 years ago.
I don't understand the question. Please rephrase.
Customer: replied 4 years ago.
Is the date at which the debt becomes uncollectible by the creditor in FL determine on a bank by bank basis based on their business practice? How would I know I have beat that date by filing for bankruptcy to avoid the tax burden of that 1099 from the foreclose?
Expert:  socrateaser replied 4 years ago.

I don't know when banks typically charge off their debt. In order to declare the debt uncollectable, for tax purposes, a taxpayer must take "reasonable steps" to collect. That's a very squishy rule, which probably favors both the bank and the debtor, because each can argue that the debt was either collectable or uncollectable, as may be necessary to support their argument against the IRS.

 

The 1099c shows the date that the debt was cancelled, and it further shows whether the debtor was known by the creditor to be in bankruptcy at the time of cancellation. So, the IRS probably requires proof from a debtor-taxpayer, any time that the bankruptcy box is left unchecked.

 

You may be overthinking this, though. If the bank has a deficiency judgment, it would ordinarily have to hold a judgment debtor exam in court to ascertain all of the debtor's assets and their location before requesting a writ of execution or garnishment from the court. And, if it doesn't, then you could argue that it failed to take reasonable steps to collect before cancelling the debt. Point being that you will be served an order to appear in court for that exam, or some other legal process intended to discover your assets before the bank cancels the debt. That's when you would be thinking hard about filing bankruptcy. And, if the bank doesn't conduct that postjudgment process, then you have an argument that the bank didn't take reasonable steps to collect, which means that the debt is not uncollectable under the IRC, and the 1099c is erroneous.

 

 

 

 

socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 34394
Experience: Attorney and Real Estate Broker -- Retired (mostly)
socrateaser and other Bankruptcy Law Specialists are ready to help you
Customer: replied 4 years ago.
Thank you for being so helpful and patient with me. I would like to ask you another questions about my strategies. Thanks.

regards,
Expert:  socrateaser replied 4 years ago.
It's a very complicated question, you asked. I don't think anyone has a bright-line answer. Anyway, you're welcome and good luck.

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • Mr. Kaplun clearly had an exceptional understanding of the issue and was able to explain it concisely. I would recommend JustAnswer to anyone. Great service that lives up to its promises! Gary B. Edmond, OK
< Last | Next >
  • Mr. Kaplun clearly had an exceptional understanding of the issue and was able to explain it concisely. I would recommend JustAnswer to anyone. Great service that lives up to its promises! Gary B. Edmond, OK
  • My Expert was fast and seemed to have the answer to my taser question at the tips of her fingers. Communication was excellent. I left feeling confident in her answer. Eric Redwood City, CA
  • I am very pleased with JustAnswer as a place to go for divorce or criminal law knowledge and insight. Michael Wichita, KS
  • PaulMJD helped me with questions I had regarding an urgent legal matter. His answers were excellent. Three H. Houston, TX
  • Anne was extremely helpful. Her information put me in the right direction for action that kept me legal, possible saving me a ton of money in the future. Thank you again, Anne!! Elaine Atlanta, GA
  • It worked great. I had the facts and I presented them to my ex-landlord and she folded and returned my deposit. The 50 bucks I spent with you solved my problem. Tony Apopka, FL
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
 
 
 

Meet The Experts:

 
 
 
  • FiveStarLaw

    Attorney

    Satisfied Customers:

    3203
    Bankruptcy Lawyer. Experienced.
< Last | Next >
  • http://ww2.justanswer.com/uploads/FL/FLAandNYLawyer/2012-1-27_14349_3Fotolia25855429M.64x64.jpg FiveStarLaw's Avatar

    FiveStarLaw

    Attorney

    Satisfied Customers:

    3203
    Bankruptcy Lawyer. Experienced.
  • http://ww2.justanswer.com/uploads/TL/tleeders/2012-6-13_204815_TSL1.64x64.jpg Terry L.'s Avatar

    Terry L.

    Attorney

    Satisfied Customers:

    2204
    Better Business Bur 15yrs bankruptcy experience. Chicago Bar
  • http://ww2.justanswer.com/uploads/mnphillips2/2009-03-13_203105_10984459-249293407.jpeg Phillips Esq.'s Avatar

    Phillips Esq.

    Attorney-at-Law

    Satisfied Customers:

    950
    B.A.; M.B.A.; J.D.
  • http://ww2.justanswer.com/uploads/CO/cortrightlaw/2011-12-5_4117_Kevin.64x64.JPG cortrightlaw's Avatar

    cortrightlaw

    Attorney

    Satisfied Customers:

    490
    Attorney practicing Bankruptcy Law including Chapter 7, Chapter 11, Chapter 12, and Chapter 13.
  • http://ww2.justanswer.com/uploads/Jay1968/2006-12-03_004423_JoeRossPhoto.jpg JoeLawyer's Avatar

    JoeLawyer

    Attorney

    Satisfied Customers:

    376
    Attorney in the practice of Bankruptcy Law since 1996
  • http://ww2.justanswer.com/uploads/DY/Dylatess/2012-9-11_1968_BHBTemplePhoto.64x64.jpg dylatess's Avatar

    dylatess

    Attorney

    Satisfied Customers:

    370
    35 plus years of experience specializing in bankruptcy law
  • http://ww2.justanswer.com/uploads/US/USLawAnswers/2012-9-20_23143_20090105211638Headshot3b.64x64.jpg Brent Blanchard's Avatar

    Brent Blanchard

    Bankruptcy Attorney

    Satisfied Customers:

    315
    Twelve years experience in all aspects of debtor & creditor BK.
 
 
 

Related Bankruptcy Law Questions