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Marvin,EA
Marvin,EA, Enrolled Agent
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Can cancellation of debt amount be not shown as income and

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Can "cancellation of debt" amount be not shown as income and reduced in the basis under form 982 towards capitol loss and carryovers? Also this i did in 2006 & now I have received tax notice from IRS that "cancelled debt " amount is not shown as income and you have to pay underpaid tax balace.What shold I do?
Submitted: 6 years ago.
Category: Tax
Expert:  Marvin,EA replied 6 years ago.
Hello and thank you for using Just Answer. Did you file Form 982 with your 2006 tax return? Did you received a Form 1099C in 2006?
Customer: replied 6 years ago.
yes I did receive 1099C in 2006 & yes Idid file form 982 marking the insolvency and marking the capitol loss applied to section with the amount.
Expert:  Marvin,EA replied 6 years ago.
When you file you Form 982 did you check block 1b and enter the amount of the 1099C on line 2? How much was the 1099C for and how much were you insolvent in 2006? What type of debt was the 1099C for?
Customer: replied 6 years ago.
yes I checked block 1b and entered the amount 26475 on line 2.In 2006 I recived 1099C for 26475 from different credit card compnies.I didn't figure out the insolvency but I had filed form 6781 and shown (-53939) as loss and 26475 as gain , resulting in -10986 as SCL and -16678 as LTL. These I plugged into schedule D to include carryovers resulting in block7 as -36187 and block16 as -58129.
Expert:  Marvin,EA replied 6 years ago.
When you file your 2006 tax return for credit card insolvency you only needed to file Form 982 with Form 1040. You did not have a Section 1256 loss so you did not need a Form 6781 or a capital gain loss so no Form 1040D was needed. You should file a Form 1040X Amended Tax Return for 2006 (www.irs.gov/pub/irs-pdf/f1040x.pdf) and change the amount on Forms 6781 and 1040D to zero.
Customer: replied 6 years ago.
So as I understand your answer I don't need to do anything with the applied section on form 982. Just check block1b and enter amount on line2. right?.Don't need to file 6781.Just finish schD as I have options trading losses.right?
Expert:  Marvin,EA replied 6 years ago.
On Form 982 all you need to do is check block 1b and enter the amount of the 1099-C on line 2 of part I. If you had trading losses you would file Form D for the losses.
Marvin,EA, Enrolled Agent
Category: Tax
Satisfied Customers: 1663
Experience: Enrolled to Represent Taxpayers Before The IRS
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Marvin,EA
Marvin,EA
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Enrolled to Represent Taxpayers Before The IRS