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Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
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Experience:  GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
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4506 income on charged off debt

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I am in the mnortgage business for the last 6 years.. This year I have seen my income drop about 80% and have found myself with allot of debt over the last few years. Since the drop in income I have not managed to pay my unsecured debt. Over the last 6 months this debt is being charged off. I did some research on this and it says that the IRS can say this is earned income and I am nervouse cause this debt is like over 150k now. If I have no assets and my home has 0 equity would I qualify as to be INSOLVENT if they do this to me?? and is so how do I prove my family is INSOLVENT??
Submitted: 6 years ago.
Category: Tax
Expert:  Ed Johnson replied 6 years ago.

Dear nformosos,

You are entitled to complete the following form to determine your level of insolvency. Unsecured consumer debt that is forgiven debt, on which you receive a 1099-C qualifies. But remember you reduce the debt by the level of insolvency. MOST likely, you will reduce the taxable amount at least in part. If your insolvency is sufficient you can reduce it to zero.

Use this form: http://www.irs.gov/pub/irs-pdf/f982.pdf

Customer: replied 6 years ago.
Reply to Ed Johnson's Post: what is the level of INSOLVENCY compared to?? income? assets?? will my accountant do this for me at tax time??
Expert:  Ed Johnson replied 6 years ago.

DearCustomer

Your accountants can do this for you.

FROM IRS CODE "... The term ‘insolvent' means the excess of liabilities over the fair market value of assets. With respect to any discharge, whether or not the taxpayer is insolvent, and the amount by which the taxpayer is insolvent, shall be determined on the basis of the taxpayer's assets and liabilities immediately before the discharge."

This link discusses what to measure and how; I have verified that the information provided is up-to-date and meets the IRS guidelines.

http://www.webcpa.com/article.cfm?articleid=25982&searchTerm=wolters&page=2

Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience: GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
Ed Johnson and 6 other Tax Specialists are ready to help you

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