Have Tax Questions? Ask a Tax Expert for Answers ASAP
Hi and welcome to Just Answer!If your friend known about the settled debt in 2009 - she should be expecting the form 1099-C.The forgiven debt is taxable income unless insolvency exemption may be used. Unfortunately - the IRS allows 6 month after the tax return was filed to amend it and to claim an insolvency exemption. At this moment - it is nothing your friend may do - but to pay the tax. She may ask the IRS to abate penalties as that was a honest mistake, but she still will be liable for taxes and interest.If the creditor did not send a form 1099-C - they might be penalized by the IRS - the penalty is $50.Sorry - but there is not much might be done to reduce tax liability.Please let me know if you have any concern.