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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7540
Experience:  15years with H & R Block. Divisional leader, Instructor
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I did my taxes in 2011 and I have gotten a notice that I had

Resolved Question:

I did my taxes in 2011 and I have gotten a notice that I had a cancellation of a debt of $4,770 in 2011, so IRS sent me a letter saying that I owe $956 due to this. Can you please help me with this and let me know if there is a way to fight or lower this. I had a lot of charge offs due to the business crash a few years ago and the only reason I did not file a BK yet is because I have some foreclosures I am litigating. Thanks
Submitted: 1 year ago.
Category: Tax
Expert:  Robin D. replied 1 year ago.

Robin D. :

Hello and thanks for trusting me to help you today. I am a tax adviser with over 15 years of experience.
The IRS unfortunately added this cancelled debt to your 2011 income because it was reported in 2011 as cancelled. If you received a Form 1099-C but the creditor is continuing to try to collect the debt, then the debt has not been cancelled and you do not have taxable cancellation of debt income.

Robin D. :

There are certain debts that are cancelled and are excluded form income:
Canceled Debt that Qualifies for EXCLUSION from Gross Income:


 



  1. Debt canceled in a Title 11 bankruptcy case

  2. Debt canceled during insolvency

  3. Cancellation of qualified farm indebtedness

  4. Cancellation of qualified real property business indebtedness

  5. Cancellation of qualified principal residence indebtedness

Robin D. :

If your debt was one of the above then that would be your reason to show to change the taxable amount.

Customer:

The debtors may be still trying to collect. I am not sure I need to check because I get many calls since I never did the BK yet.

Customer:

I am not sure it it would qualify as one of those.

Customer:

It was a credit card.

Robin D. :

Yes check on that and then you will know how to respond to the IRS. Do not delay as there time limits to respond.

Robin D. :

Credit card debt would be allowed for exclusion if you were insolvent.

Customer:

I was away and missed the date to respond. Now they are just asking for me to pay it. Is it too late?

Robin D. :

Generally yes.

Robin D. :

The IRS issues the notices and has the response times allowed because those are set by law and what the taxpayer and IRS must adhere to.

Customer:

Should I try anyway? I was insolvent. Could you tell me the best way to express that to them?

Robin D. :

Yes, if you were insolvent and can show just cause of your response delay then I would say you should try. Of course if the IRS does not agree then you are incurring interest on the amount till paid.

Robin D. :

Simply tell the reason why you were not able to respond timely.

Robin D. :

You will want to prepare Form 982

Robin D. :

that will be the form to use to show that you were insolvent.

Customer:

Do I find that form on their site?

Robin D. :

I can give you link, one sec..............

Customer:

Thank you very much and do you recommend a good reason for why I was late because even when I did see it I waited cause I was not sure how to fight it and did not have money to pay it then started with justanswer!

Robin D. :

Then that would be your reason to tell the IRS.

Robin D. :

You should simply explain your inexperience an dthe need to find assistance that you could afford.

Customer:

Ok Great! Thanks so much. You were very helpful...wish knew about here sooner lol Have a great day!

Robin D. :

You are most welcome

Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7540
Experience: 15years with H & R Block. Divisional leader, Instructor
Robin D. and 3 other Tax Specialists are ready to help you
Customer: replied 1 year ago.


HI, I have been busy and just now got to filling the form out. The form 982 seems to be if it was discharged. Just confusing. Any quick advice on how to fill it out. Thanks so much

Expert:  Robin D. replied 1 year ago.
If you are claiming Insolvency Check box 1b on Form 982, and, on line 2, include the smaller of the amount of the debt canceled or the amount by which you were insolvent immediately prior to the cancellation. You must also reduce your tax attributes in Part II of Form 982.
Customer: replied 1 year ago.


So in part @ pretty much I write the amount they are saying I owe?

Expert:  Robin D. replied 1 year ago.
The insolvency exclusion amount is the amount of canceled debt that exceeds the fair market value of your assets.
So if the cancelled debt amount is $4,770 and you have no assets then you are insolvent by $4770 but if you have any assets then you have to look at their fair market value. Only the amount of the $4770 that is more then your assets would be excluded.
Customer: replied 1 year ago.


Thank you. I appreciate it!

Expert:  Robin D. replied 1 year ago.
You are welcome.
Customer: replied 1 year ago.


Sorry finishing it up finally to mail it out, but I am confused cause in part 3 in mentions a corporation. This was for my personal taxes. Also which box would I write the amount I was insolvent whether or not it be with no assets or with assets?


 


Thanks

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