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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28090
Experience:  Taxes, Immigration, Labor Relations
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Hi Chad, This is in regards XXXXX XXXXX car that was repossessed

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Hi Chad,

This is in regards XXXXX XXXXX car that was repossessed in 2011. I am in the process of filling out Form 982 and am having trouble figuring out Part II. My liabilities were higher than my assets, which I used 4681 worksheet to calculate. Do I put the difference between the two (liabilities minus assets), on line 10a? Or do I put the income net difference (the cancelled debt from the repo) on that line?

Thanks very much!

Lev :

Hi and welcome to our site!

Customer:

Hello!

Customer:

Are you there?

Lev :

The first step would be to identify the amount of debt forgiven - from 1099C. For instance - $1500
The second step to determine your insolvency using the worksheet - the difference between the two (liabilities minus assets) - for instance - $5000.
Then - you will compare these amounts - and if your insolvency is more than the amount of debt forgiven - you will

Customer:

I have done both step one and two.

Customer:

My insolvency is more than the amount of debt forgiven

Lev :

you will use the full amount to report on form 982 lines 4 and 10a.
In our example - because $1500 is less than $5000 - you will report $1500 on form 982.

Lev :

That is correct - because your insolvency is more than the amount of debt forgiven - report the full amount of debt forgiven on form 982.

Lev :

That means - the full amount of debt forgiven is excluded from taxable income because of your insolvency.

Customer:

so the full amount on 982 and not just the amount that the IRS reporting as the Income Net Difference?

Customer:

because the Income Net Difference is less than my insolvency

Lev :

The full amount.
You would exclude a partial amount ONLY if your insolvency were less than the amount of debt forgiven.
But that is not your case - you wrote "My insolvency is more than the amount of debt forgiven" - that is a key for determination - so you report the full amount on form 982 and nothing on form 1040.

Customer:

I understand. When I fax the forms into IRS, which forms other than 982 do I send?

Lev :

The amount of insolvency determines how much you may exclude.
If your debt forgiven were $1500, but insolvency were $1000 - you would be able to exclude only $1000 - and $500 would be your taxable income.
But your situation is different.
Form 982 should be attached to your 1040.
If you already filed your tax return - you need to amend it using 1040X (even all amounts are same) and attach 982.

Customer:

I understand. However, I received a notice from the IRS in regards XXXXX XXXXX year 2011. This is the subject matter we are discussing today.

Lev :

Did you file your 2011 tax return?

Customer:

Yes

Lev :

So - you need to use form 1040X - http://www.irs.gov/pub/irs-pdf/f1040x.pdf
Take all numbers from your 2011 tax return.
In the header - check the box - This return is for calendar year 2011.
In part III - explain the reason - additional form 982 because of insolvency.
Attach the form 982 - and I suggest to attach the worksheet - just in case to avoid possible questions from the IRS.
Mail all to the address in the notice you received.

Customer:

Great! Thanks very much for your answers and taking the time to explain it all to me Lev. I really appreciate it.

Customer:

I think I will have to fax it in, because they put my deadline on the 22nd.

Lev :

My goal is to provide EXCELLENT service.
I really appreciate your warm words.
Please be sure to come back for all your tax related issues.

Customer:

Thank you! Have a great weekend!

Lev :

I suggest to fax AND to mail via certified mail - because your signature is required to 1040X.

Customer:

OH!

Lev :

Be sure to keep copies!

Customer:

Thanks very much for that! I'll keep copies too.

Customer:

Have a good one!

Lev :

You are very welcome.

Customer:

:)

Lev and other Tax Specialists are ready to help you