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 Merlo Your Own Question

Merlo
Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
Type Your Tax Question Here...
Merlo is online now
A new question is answered every 9 seconds

I did not receive a 1099-c for cancellation of debt. The debt

Customer Question

I did not receive a 1099-c for cancellation of debt. The debt is well over ten years old. Now I'm being taxed on it. How,why and what can I do.
Submitted: 4 years ago.
Category: Tax
Expert:  Merlo replied 4 years ago.
Hello rjmjr,

You say you did not receive a 1099-C but are now being taxed on and old debt. Does that mean that you have now finally received 1 1099-C form, or did the IRS notify you they had received a form which you had not reported.

Please tell me the years involved here.
Customer: replied 4 years ago.
The IRS notified me they received one and wasn't reported.The debt was 12 years ago on a truck loan.
Sorry it took so long to get back to you.
Expert:  Merlo replied 4 years ago.
Hello rjm,

By the time you posted your response last night, I had already left the forum, so I apologize for my delay in getting back to you on this.

Any time that you have a lender who forgives or cancels a debt that you owe, the IRS requires that they send you a 1099-C to report the amount of debt that was cancelled. This then becomes taxable income to you. I realize that it is not really income, in the sense that you earned money, but in the eyes of the IRS it is treated as income since you received something in the form of goods or services or cash which you did not have to repay.

When the lender issues the 1099-C form, a copy is also sent to the IRS which is how they know this was not reported on your return. It's possible that your copy of the 1099 was lost in the mail or perhaps sent to the wrong address, but in any case, you will now have to deal with this situation.

When you have a cancellation of debt, there are really only two ways you can avoid paying tax on the this. One is if the debt was discharged through a bankruptcy filing. That is no an option for you at this point since the debt was from so many years ago.

The only other option is if you can show that you were insolvent at the time the debt was forgiven, meaning that at the time this happened your liabilities were more than your assets.

In order to claim insolvency and not pay tax on the debt which was forgiven, you must file Form 982 with the IRS. You will check the box on Line 1b indicating you are requesting exclusion based on insolvency.

You should attach some documentation to show how you determined you were insolvent at the time the debt was forgiven. This can be a simple listing of your assets and liabilities. Here is an example:

Assets:
House - $100,000
Car - $10,000
Checking Account - $1000
Misc. personal property - $2,000
Total Assets: $113,000

Liabilities:
Home Mortgage: $80,000
Car Loan: $7,000
Credit Car Debt: $30,000
Total Liabilities: $117,000

Total Insolvency = Assets ($113,000) minus Liabiities ($117,000) equals (-$4,000)

In the above example, someone could excude $4,000 from the amount of cancelled debt they had to report, so in order to exclude the entire amount, your total insolvency would have to be the same amount or more than what was reported on the 1099-C form.

The Form 982 is included as part of your actual tax return for the year this happened. So if you wish to try and claim insolvency, you will need to file an amended tax return with the IRS for that year, and include this form.

If this was helpful please press the Accept button. Positive feedback is also appreciated.

Thank you rjm, and let me know if you have more questions.


Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
Merlo and 4 other Tax Specialists are ready to help you
Customer: replied 4 years ago.
Thank You very much.RJMJ
Expert:  Merlo replied 4 years ago.
Thank you RJ, and good luck in getting this resolved.

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:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • 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
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.