skybluemoon

IRS form 982 question

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I have no idea when an OC would file a 1099C w/the IRS but would it be advisable to go ahead and file form 982 so as to run interference with the IRS? Does anyone have any input on this or any personal experience regarding the IRS and form 982 insolvencey? Thanks.

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I have no idea when an OC would file a 1099C w/the IRS but would it be advisable to go ahead and file form 982 so as to run interference with the IRS? Does anyone have any input on this or any personal experience regarding the IRS and form 982 insolvencey? Thanks.

If the OC filed 1099-C you must receive a copy of it by the January 31, 2010 for tax year 2009 and the IRS must receive it by the February 28, 2010.

If you want to be on a safe side call the OC and ask for a copy of the 1099-C and ask when it was sent to you. If they say that it was sent, some day, prior to the January 31, 2010 to you ask what was the amount.... just for your record and ask to resend it.

If you qualify for 982 just file 982 and do not report anything anywhere on your tax return.

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I would not file 982 unless you have received a 1099.

As I've posted many times on this site, form 982 is primarily an income DEFERRAL technique not a free lunch. It is quite complicated because you need to prepare a personal financial statement, reduce basis of any assets in a predetermined order, reduce any remaining tax attributes, and recognize any excess COD income beyond those amounts. I don't know why there seems to be a pervasive misconception on this site that you file a 982 and a tax fairy waves a magic wand and makes income disappear.

This posting is rather thorough- seems to be from a CPA who knows how to handle these: http://www.justanswer.com/questions/60al-debt-canceled-form-982

In your case, I would not file a 982 unless you are 100% certain you have income. How would you even know that your debt has been canceled in the first place (giving rise to income) if there hasn't been a 1099 filing?

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How would you even know that your debt has been canceled in the first place (giving rise to income) if there hasn't been a 1099 filing?

jp26, it is not whether or not you have receive it, it is about whether or not the IRS receive it.

This is the same catch 22 question like: how would you even know that you have been served summons.

If you expect lawsuit you should look for summons.

If you expect 1099-C you should look for it too.

If not, there maybe some unwinding to do later.

But in this case you maybe right because the IRS is somewhat lenient to enforce the 1099-C.

Edited by sub00

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If you expect 1099-C you should look for it too.
Absolutely.

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Form 982 section 1 asks for no proof of insolvency, line 1b but if irs asks you must show proof. My question is how likely is irs to audit and ask for the proof in this economy? Does the irs know the balance in my ira, or do they only know i have an ira. House with no mortgage purchased in 08, does title company notify irs of purchase? it was not cash but bank check, so no 10,000 reporting requirement. will irs accept an offer in compromise on debt due without asking the extent of assests?

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I don't know why there seems to be a pervasive misconception on this site that you file a 982 and a tax fairy waves a magic wand and makes income disappear.
I've tried to be the voice of reason about this. It is part of the debt fixer spiel..."let us setlle your debts for 30%, you claim insolvency, and your taxes go away".

I've tried to point out it ain't that easy. To qualify for insolvency, its almost like you need to qualify fo a BK 7...without any state or federal exemptions. And, things like IRAs and 401ks are "assets" that must be figured in.

And...I would bet that even with today's "kinder, genter" IRS, a 982 triggers an audit...period.

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I've tried to be the voice of reason about this. It is part of the debt fixer spiel..."let us setlle your debts for 30%, you claim insolvency, and your taxes go away".

I've tried to point out it ain't that easy. To qualify for insolvency, its almost like you need to qualify fo a BK 7...without any state or federal exemptions. And, things like IRAs and 401ks are "assets" that must be figured in.

And...I would bet that even with today's "kinder, genter" IRS, a 982 triggers an audit...period.

Nonsense!

Filing 982 will not alone trigger any IRS audit.

Look you are alarmist willingtocope.

If you would have any of such stated assets above the CA/OC would never cancel your debt to start with and IRS knows that.

Once again, do not be intimidated and file 982 if there is no other way to pay taxes. The ability to pay taxes is your true indicator of insolvency.

The IRS worksheet is very vague and it does not need to be submitted with the 982.

What is the fair marked value of your assets?.... it is an amount of money the bank would lend you against your assets.

So go to bank gave them the list of your assets and ask for the equity loan.

I can grantee you that bank will say that there is 0 equity in your assets.

Get it in writing and save it for three years just in the case IRS will ask.8-)

Edited by sub00

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What is the fair marked value of your assets?.... it is an amount of money the bank would lend you against your assets.

Sigh.....

Nope. Different criteria all together. For secured debt, the value of the asset is the amount you owe. While a bank might not lend you money on an under water house, the IRS treats it differently.

And, like I said, assets that may be exempt in a BK 7 must be counted in the 982.

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Sigh.....

Nope. Different criteria all together. For secured debt, the value of the asset is the amount you owe. While a bank might not lend you money on an under water house, the IRS treats it differently.

You are perpetuating the above oxymoromic statements.

The equity loan is a loan based on equity = (assets - liabilty)

if the equity = 0 you are insolvent for the IRS as well as the Bank.

And, like I said, assets that may be exempt in a BK 7 must be counted in the 982.

I know you are keeping saying that but show me the same language in the IRS official booklet. :-)

FYI: If you have your house upside down then let the IRS lean it for the amount of taxes owned on your gain in canceled debt of your mortgage.8-)

Edited by sub00

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Okay the "Mortgage Relief Act of 2009" did change some of the rules. See http://www.irs.gov/individuals/article/0,,id=179414,00.html But, that's just in regard to being upside down on a mortgage, and there are lots of "if...then..else..maybe" gibberish to wade through. Translate at your own risk.

Now, as far as the rest of the "insolvency" goes....see Pub 4681. http://www.irs.gov/publications/p4681/ch01.html#en_US_publink100080242

Specifically, Page 6.

Insolvency Worksheet (It doesn't copy well from the PDF).

Date debt was canceled (mm/dd/yy) Part I. Total liabilities immediately before the cancellation (do not include the same liability in more than one category)Liabilities (debts)Amount Owed

Immediately Before the

Cancellation1.Credit card debt$2.Mortgage(s) on real property (including first and second mortgages and home equity loans) (mortgage(s) can be on personal residence, any additional residence, or property held for investment or used in a trade or business) $3.Car and other vehicle loans$4.Medical bills$5.Student loans$6.Accrued or past-due mortgage interest$7.Accrued or past-due real estate taxes$8.Accrued or past-due utilities (water, gas, electric)$9.Accrued or past-due child care costs$10.Federal or state income taxes remaining due (for prior tax years)$11.Loans from 401(k) accounts and other retirement plans$12.Loans against life insurance policies$13.Judgments$14.Business debts (including those owed as a sole proprietor or partner)$15.Margin debt on stocks and other debt to purchase or secured by investment assets other than real property$16.Other liabilities (debts) not included above$17.Total liabilities immediately before the cancellation. Add lines 1 through 16.$Part II. Fair market value (FMV) of assets owned immediately before the cancellation (do not include the FMV of the same asset in more than one category) AssetsFMV Immediately Before

the Cancellation18.Cash and bank account balances$19.Residences (including the value of land) (can be personal residence, any additional residence, or property held for investment or used in a trade or business) $20.Cars and other vehicles$21.Computers$22.Household goods and furnishings (for example, appliances, electronics, furniture, etc.)$23.Tools$24.Jewelry$25.Clothing$26.Books$27.Stocks and bonds$28.Investments in coins, stamps, paintings, or other collectibles$29.Firearms, sports, photographic, and other hobby equipment$30.Interest in retirement accounts (IRA accounts, 401(k) accounts, and other retirement accounts)$31.Interest in a pension plan$32.Interest in education accounts$33.Cash value of life insurance$34.Security deposits with landlords, utilities, and others$35.Interests in partnerships$36.Value of investment in a business$37.Other investments (for example, annuity contracts, guaranteed investment contracts, mutual funds, commodity accounts, interest in hedge funds, and options) $38.Other assets not included above$39.FMV of total assets immediately before the cancellation. Add lines 18 through 38.$Part III. Insolvency40.Amount of Insolvency. Subtract line 39 from line 17. If zero or less, you are not insolvent. $

AND, yes, the value of MOST assets are based on "Fair Market Value" )pennies on the dollar)...but...IRAs, $)!ks, other Pensions, and cash value of Life Insurance policies. Details...lots of details.

So, my point is...its not a slam dunk for everyone. Read the instructions...be sure you understand them...and translate at your own risk.

Edited by willingtocope

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Okay the "Mortgage Relief Act of 2009" did change some of the rules. See http://www.irs.gov/individuals/article/0,,id=179414,00.html But, that's just in regard to being upside down on a mortgage, and there are lots of "if...then..else..maybe" gibberish to wade through. Translate at your own risk.

Now, as far as the rest of the "insolvency" goes....see Pub 4681. http://www.irs.gov/publications/p4681/ch01.html#en_US_publink100080242

Specifically, Page 6.

Insolvency Worksheet (It doesn't copy well from the PDF).

AND, yes, the value of MOST assets are based on "Fair Market Value" )pennies on the dollar)...but...IRAs, $)!ks, other Pensions, and cash value of Life Insurance policies. Details...lots of details.

So, my point is...its not a slam dunk for everyone. Read the instructions...be sure you understand them...and translate at your own risk.

As I mentioned above, I am fully aware of the worksheet and you do not have to mail it to the IRS. It is only a tool for your calculation.

There are no "Details...lots of details" YOU SIMPLY EYE BALL YOUR ASSETS AND LIABILITY

I do not see anywhere your statement: "assets that may be exempt in a BK 7 must be counted in the 982."

Example: In the California we have a homestead on the house which in my case totals $150,000 for me and my wife and my age. The homestead is "BK asset".

If there is 1099-C against me not my wife then:

the fair market value = (Selling price

- <all expenses associated with the sail 6% Realtor fee>

- <all liability, mortgage, depreciation, etc.>

- <"BK asset" like half of my wife's homestead that is what she must be payed upfront>

- <other>)

So fair market value of my house is < 0.

Be aware that if you elect to file 982 form you are not required to report your canceled debt nowhere on any IRS form and are not required to submit any worksheet about how did you arrived to your insolvency so you are not submitting anything under a penalty of perjury.

You do not have to sell your assets to prove your insolvency or to get cash for your assets so you can pay your taxes..... you should be able to borrow against your assets.

As I said earlier, if I would want to feel somehow secure against some IRS lunatic agent, I would put all my assets on the paper (minus liability) and would ask bank for the EQUITY TAX LOAN in writing........ you will not get it!!!!

THERE IS YOUR INSOLVENCY [EMPHASES ADDED] 8-)

There are 1001 ways how to be insolvent without committing any unlawful act.:rolleyes:

Edited by sub00

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I do not see anywhere your statement: "assets that may be exempt in a BK 7 must be counted in the 982."

Under the definition of insolvency....For purposes of determining insolvency, assets include the value of everything you own (including assets that serve as collateral for debt and exempt assets which are beyond the reach of your creditors under the law, such as your interest in a pension plan and the value of your retirement account
If there is 1099-C against me not my wife then:

the fair market value = (Selling price

- <all expenses associated with the sail 6% Realtor fee>

- <all liability, mortgage, depreciation, etc.>

- <"BK asset" like half of my wife's homestead that is what she must be payed upfront>

- <other>)

So fair market value of my house is < 0.

Nope...FMV is strictly what you can sell the asset for...no adjustments for repairs or depreciation...and the homestead exemption does not apply (see above). It is also not reduced by the mortgage...that's accounted for under Liabilities.
not required to submit any worksheet about how did you arrived to your insolvency so you are not submitting anything under a penalty of perjury.

...true...unless you get audited.

Look...we can argue this back and forth forever. I'm not a tax expert and I would bet neither are you.

My point is...claim insolvency and you take your chances with an IRS audit. If they decide against you, you get socked with penaltiy and interest.

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Under the definition of insolvency....For purposes of determining insolvency, assets include the value of everything you own (including assets that serve as collateral for debt and exempt assets which are beyond the reach of your creditors under the law, such as your interest in a pension plan and the value of your retirement account

Nope...FMV is strictly what you can sell the asset for...no adjustments for repairs or depreciation...and the homestead exemption does not apply (see above). It is also not reduced by the mortgage...that's accounted for under Liabilities.

...true...unless you get audited.

Look...we can argue this back and forth forever. I'm not a tax expert and I would bet neither are you.

My point is...claim insolvency and you take your chances with an IRS audit. If they decide against you, you get socked with penaltiy and interest.

WRONG!!!

My point is...claim insolvency and you take your chances with an IRS audit. If they decide against you, you get socked with penaltiy and interest.

Your point is crapola!!!!!!

I have prove to you that even if audited there is no prove that you have violated any law and you keep cumming with your "AUDIT BS"

YOU ARE CREATING A FEAR IN MIND OF PEOPLE HERE WHO HAVE NO WAY TO PAY TAXES AN WILL DO SOMETHING STUPID INSTEAD OF FILING 982 AND THEN THEY WILL BE IN THE REAL TROUBLE!

WRONG!

Nope...FMV is strictly what you can sell the asset for...no adjustments for repairs or depreciation...and the homestead exemption does not apply (see above). It is also not reduced by the mortgage...that's accounted for under Liabilities.

As to Homestead?.... A have explained to you that my wife is entitled to it!!!!

Obviously I was counting on your intelligence hoping that you would place all items in appropriate column in the worksheet.

There is no IRS Rule which would prohibit you to make a mini worksheet on the house alone.

In may opinion you are alarmist who is using the IRS as some sort of fear fetish to scare people in this forum to make yourself Mr. important.:rolleyes:

Edited by sub00

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