Tax

Have a tax question? Ask a tax Expert

Ask an Expert,
Get an Answer ASAP!

I got chargeoffs for $120k and now the IRS is asking

Customer Question
for me for $20k for...
I got chargeoffs for $120k and now the IRS is asking for me for $20k for taxes, even though I never made a profit. If the credit card company forgave me for the debt how is that a profit? I have no assets/money to pay for the tax.
Submitted: 3 years ago.Category: Tax
Show More
Show Less
Ask Your Own Tax Question
Answered in 3 minutes by:
6/20/2015
Tax Professional: Lev, Tax Advisor replied 3 years ago
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 32,986
Experience: Taxes, Immigration, Labor Relations
Verified
Several issues....When the debt is forgiven and it becomes obvious that it will not be paid back - that amount is classified as COD - cancellation of debt (COD) income - and it is income recognized because loans are cancelled.In general - that is taxable income and reported on form 1040 line 21.HOWEVER under certain conditions - you might be able to exclude COD income from taxable income.
Ask Your Own Tax Question
Customer reply replied 3 years ago
What are those circumstances? How can I make sure I don't pay that? Is there a form I file?
Tax Professional: Lev, Tax Advisor replied 3 years ago
.You MIGHT qualify for the insolvency exclusion.When you prepare your Insolvency Worksheet - you need to determine if you were insolvent.The worksheet may be found on page 8 in this publication - http://www.irs.gov/pub/irs-pdf/p4681.pdfYou list all your assets and all liabilities - on the day before the loan was forgiven - so include that loan into the worksheet.This worksheet is not sent with your tax return - just keep it for your record.Do not send any supporting documents and do not send that Insolvency Worksheet - to the IRS - just keep for your record..That exclusion is claimed on form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness.and that form 982 should be included into her tax return.- check the box 1(b) and list excluded amount on line 2.Here is the form - www.irs.gov/pub/irs-pdf/f982.pdf
Ask Your Own Tax Question
Tax Professional: Lev, Tax Advisor replied 3 years ago
Same rules are for all types of debts - when we took a credit - the money were not included into our income because that was a loan and we were expected to pay it back.When the debt is forgiven and it becomes obvious that it will not be paid back - that amount is classified as COD - cancellation of debt (COD) income - and it is income recognized because loans are cancelled.In general, you must report any taxable amount of a canceled debt for which you are liable as ordinary income from the cancellation of debt, on Form 1040.Canceled debts that meet the requirements for any of the following exceptions or exclusions are not taxable..Debt Cancellations or Reductions that Qualify for EXCEPTION to Inclusion in Gross Income:1.Amounts specifically excluded from income by law such as gifts, bequests, devises or inheritances2.Cancellation of certain qualified student loans3.Canceled debt, that if it were paid by a cash basis taxpayer, would be deductible4.A qualified purchase price reduction given by a seller5.Any Pay-for-Performance Success Payments that reduce the principal balance of your home mortgage under the Home Affordable Modification Program.Canceled Debt that Qualifies for EXCLUSION from Gross Income:1.Debt canceled in a Title 11 bankruptcy case2.Debt canceled during insolvency3.Cancellation of qualified farm indebtedness4.Cancellation of qualified real property business indebtedness5.Cancellation of qualified principal residence indebtedness
Ask Your Own Tax Question
Tax Professional: Lev, Tax Advisor replied 3 years ago
So far - as you had NO assets - I suggest to verify if you qualify for insolvency exclusion.If yes - that woudl allow to avoid tax liability.
Ask Your Own Tax Question
Tax Professional: Lev, Tax Advisor replied 3 years ago
So far - as you had NO assets - I suggest to verify if you qualify for insolvency exclusion.
If yes - that woudl allow to avoid tax liability.
That exclusion is claimed on form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness.
and that form 982 should be included into her tax return.
- check the box 1(b) and list excluded amount on line 2.
Here is the form - www.irs.gov/pub/irs-pdf/f982.pdf
Let me know if you need any help with reporting.
I appreciate if take a moment to rate my answer.
Experts are ONLY credited when answers are rated positively.
If you still have any doubts, need clarification - please be sure to ask.
I am here to help you will all tax related issues.
Ask Your Own Tax Question
Customer reply replied 3 years ago
When I filed the insolvency they said we still have to pay, I think they are unqualified in their job and really have no idea what an insolvency worksheet is. How can I get ahold of someone who actually knows the process ? I went to their local office and they didn't even know any of these terms
Tax Professional: Lev, Tax Advisor replied 3 years ago
First of all - you are not required to hire a tax preparer - and perfectly may file your own tax return.
When you find that the tax preparer doesn't have required expertise - you may choose a different preparer or a different service provider.
A tax return preparer is trusted with your most personal information. They know about your marriage, your income, your children and your social security numbers – the details of your financial life.
Most tax return preparers provide outstanding service. However, each year, some taxpayers are hurt financially because they choose the wrong tax return preparer.
Anyone can be a paid tax return preparer as long as they have an IRS Preparer Tax Identification Number (PTIN) and they sign and enter it on all returns they prepare. However, tax return preparers have differing levels of skills, education and expertise.
The following points will assist you when selecting a tax return preparer:
Be wary of tax return preparers who claim they can obtain larger refunds than others can.
Avoid tax return preparers who base their fees on a percentage of the refund or who offer to deposit all or part of your refund into their financial accounts
Ensure you use a preparer with a preparer tax identification number (PTIN). Paid tax return preparers must have a preparer tax identification number to prepare all or substantially all of a tax return.
Use a reputable tax professional who furnishes their PTIN, signs the tax return and provides you a copy of the return (as required).
Consider whether the individual or firm will be around for months or years after filing the return to answer questions about the preparation of the tax return.
Check the person's credentials. Only attorneys, CPAs and enrolled agents can represent taxpayers before the IRS in all matters, including audits, collection and appeals. Other tax return preparers may only represent taxpayers for audits of returns they actually prepared.
I appreciate if take a moment to rate my answer.
Experts are ONLY credited when answers are rated positively.
Ask Your Own Tax Question
Was this answer helpful?

How JustAnswer works

step-image
Describe your issueThe assistant will guide you
step-image
Chat 1:1 with a tax professionalLicensed Experts are available 24/7
step-image
100% satisfaction guaranteeGet all the answers you need
Ask Lev Your Own Question
Lev
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 32,986
32,986 Satisfied Customers
Experience: Taxes, Immigration, Labor Relations

Lev is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

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.WMatteson, 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.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, 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.

OrvilleHesperia, 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!!!!

AlexLos 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.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,338 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,512 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

PhillipsEsq.

PhillipsEsq.

Attorney-at-Law

59 satisfied customers

B.A., M.B.A, J.D.

Robin D.

Robin D.

Senior Tax Advisor 4

15,569 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,655 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

< Previous | Next >

Related Tax Questions
If a tax preparer advises a customer that a certain item can
If a tax preparer advises a customer that a certain item can be taken as a deduction on the return and that advice is wrong is the preparer in breach of his fiduciary duty to his customer? … read more
Chad EA, CFP ®
Chad EA, CFP ®
IRS Enrolled Agent, CFP(R),
Master\u0027s Degree
2,395 satisfied customers
If a tax preparer advises a customer that a certain item can
If a tax preparer advises a customer that a certain item can be taken as a deduction on the return and that advice is wrong is the preparer in breach of his fiduciary duty to his customer? … read more
Fred Rook
Fred Rook
Corporate Controller
BSBA
134 satisfied customers
What is the date a partnership return is due? My preparer is
Yes. My preparer is a CPA and advised it was due on April 15 of each year. … read more
Carter McBride
Carter McBride
LLM
1,153 satisfied customers
In preparation for MN income tax return, we noticed a
In preparation for MN income tax return, we noticed a discrepancy and would like to receive a transcript for the 2016 income tax return for MN. We have a POA on both spouses, thanks, … read more
Barbara
Barbara
Enrolled Agent, Paralegal
5,283 satisfied customers
A TAX PREPARER WAS AUDITED SHE HAS A HORSE RANCH AND DOES
A TAX PREPARER WAS AUDITED SHE HAS A HORSE RANCH AND DOES ACCOUNTING THE IRS AGENT FOUND THE HORSE RANCH AND THE NOL IT PRODUCED WAS A HOBBY NO OFFSET ALLOWED. THEY ONLY WENT BACK 3 YEARS. WHAT CAN SH… read more
Carter McBride
Carter McBride
LLM
1,153 satisfied customers
A tax preparer did my taxes incorrectly. He or she my
a tax preparer did my taxes incorrectly. He or she doubled my federal income tax on my regular 1040 and my two 1040 X forms. The IRS paid me the money of the refund. I really should not have gotten a … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Lev. I have a client that had major tax preparation fee last
Good morning Lev. I have a client that had major tax preparation fee last year due to unfiled returns for back years. In all these returns I had to prepare Schedule C along few other forms. How would … read more
Lev
Lev
Tax Advisor
32,986 satisfied customers
Our tax preparer filed an extension for the first time for
Our tax preparer filed an extension for the first time for us (seems he is behind); can we go to another preparer to file our taxes once an extension is filed? … read more
Brian Michels
Brian Michels
Partner, CPA
Bachelors of Business Administration
199 satisfied customers
I am preparing a 1040 return for a person who receives a K-1
I am preparing a 1040 return for a person who receives a K-1 from a partnership that he materially participates. On the K-1, the partnership indicates that the partner contributed $18,000.00 to a 401(… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I'm preparing someone's tax return that needs to be mailed.
I'm preparing someone's tax return that needs to be mailed. They're out of the country. Can they e-sign and I mail it? I know they can e-sign e-filed returns, but not sure about paper returns.… read more
Lev
Lev
Tax Advisor
32,986 satisfied customers
I prepared my brother-in-law's taxes last year. He sold a
Hello, I prepared my brother-in-law's taxes last year. He sold a piece of property and not having dealt with something like that before, I put it down as other income. I am told that it is to be enter… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I am preparing my tax return and realize I might be in for a
I am preparing my tax return and realize I might be in for a big shock and want to understand my situation better before I forward all my details to my regular tax filing company. Can I get (pay for) … read more
Lev
Lev
Tax Advisor
32,986 satisfied customers
Looking for a checklist in preparing tax for tax preparers.
looking for a checklist in preparing tax for tax preparers … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I was ask to prepare a partnership's tax return for 2015 &
I was ask to prepare a partnership's tax return for 2015 & 2016. It's my first time doing this and need some advise. This is a used car dealership with three (3) partners. According to the partnership… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I have prepared the Form 8949 reporting the sale of a
I have prepared the Form 8949 reporting the sale of a estate's fractional interest in a house, the other fractional owners are the residual beneficiaries. Sales proceeds minus the (stepped up basis pl… read more
Lev
Lev
Tax Advisor
32,986 satisfied customers
When I filed my 2016 tax return, the tax preparer used a
When I filed my 2016 tax return, the tax preparer used a form 4797 because in 2015 I sold a rental property. This was the only property I owned. I am retired & my annual income is a little over $20,00… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
15,569 satisfied customers
I am preparing the form 8949, to report the estate's
I am preparing the form 8949, to report the estate's fractional share of a real estate sale. I have some questions regarding the preparation of the form.1. Part ii, 1(b) asks for the date acquired - i… read more
Lev
Lev
Tax Advisor
32,986 satisfied customers
A CPA prepared a filed a personal return last april. There
A CPA prepared a filed a personal return last april. There was a NYS and NYC refund due. The check never was received. The CPA is not helping procure a replacement check, whom should the person call o… read more
Lev
Lev
Tax Advisor
32,986 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x