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Credit Card Debt Discharged in Chapt 7 and Form 1099-C

 
 
bm30003700@aol.com
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      10-08-2010, 08:08 PM
Is only credit card debt reported on 1099-C reported as income. ? My
client had credit card debt discharged in Chapter 7 bankruptcy, but
only received 1099-C showing portion of the debt discharged.
Bankruptcy attorney
said she was not surprised no other 1099-C's issued because,
"Technically, debt discharged before 1099-C is issued is not cancelled
debt".

I've read in at least one article that 1099-C income should be
reported on the tax return, and can then be deducted on Form 982.
Seems strange to me to only report amount which one credit card
company reported on 1099-C,
although if it is ultimately not included in income anyway, due to
being part of bankruptcy perhaps it doesn't matter.

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Stuart A. Bronstein
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      10-08-2010, 11:05 PM
"(E-Mail Removed)" <(E-Mail Removed)> wrote:

> Is only credit card debt reported on 1099-C reported as income.
> ? My client had credit card debt discharged in Chapter 7
> bankruptcy, but only received 1099-C showing portion of the debt
> discharged. Bankruptcy attorney
> said she was not surprised no other 1099-C's issued because,
> "Technically, debt discharged before 1099-C is issued is not
> cancelled debt".


Apparently the bankruptcy attorney hasn't a clue what she's talking
about. Certainly it's cancelled debt - it's an obligation that once
had to be paid, but no longer does.

There is an exemption in the tax law, however, for debt cancelled in
bankruptcy or debt cancelled while the debtor was insolvent. These
cancellations of debt are not taxed.

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Stu
http://downtoearthlawyer.com

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Phil Marti
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      10-09-2010, 10:50 AM
On Oct 8, 4:08*pm, "(E-Mail Removed)" wrote:

> Is only credit card debt reported on 1099-C reported as income. ? *My
> client had credit card debt discharged in Chapter 7 bankruptcy, but
> only received 1099-C showing portion of the debt discharged.


If there's a 1099-C it must be addressed on the return. Not all
cancelled debt, for example, debt discharged in bankruptcy, is taxable
income. The back of the taxpayer's copy of the 1099-C gives clues
about how to deal with it on the return.

If the taxpayer had taxable income from cancelled debt that wasn't
reported on a 1099-C it still goes on line 21 of the 1040.

Phil Marti
VITA/TCE Volunteer
Clarksburg, MD

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bm30003700@aol.com
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      10-10-2010, 04:47 PM
On Oct 9, 3:50*am, Phil Marti <(E-Mail Removed)> wrote:
> On Oct 8, 4:08*pm, "(E-Mail Removed)" wrote:
>
> > Is only credit card debt reported on 1099-C reported as income. ? *My
> > client had credit card debt discharged in Chapter 7 bankruptcy, but
> > only received 1099-C showing portion of the debt discharged.

>
> If there's a 1099-C it must be addressed on the return. *Not all
> cancelled debt, for example, debt discharged in bankruptcy, is taxable
> income. *The back of the taxpayer's copy of the 1099-C gives clues
> about how to deal with it on the return.
>
> If the taxpayer had taxable income from cancelled debt that wasn't
> reported on a 1099-C it still goes on line 21 of the 1040.
>
> Phil Marti
> VITA/TCE Volunteer
> Clarksburg, MD


I must be missing something here. My client had debt on several
credit cards discharged in the bankruptcy. Only one of the credit
card companies filed form 1099C. It seems strange to me that because
one credit card company filed 1099C,
while the others could have, but didn't, only the income on form 1099C
from one credit card company is reported. Does
one then file Form 982 with the return, reducing tax attributes only
by the amount on the 1099C? Sorry to ask such
an elementary question.

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Phil Marti
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      10-11-2010, 10:12 AM
On Oct 10, 12:47*pm, "(E-Mail Removed)" wrote:

> I must be missing something here. *My client had debt on several
> credit cards discharged in the bankruptcy. *Only one of the credit
> card companies filed form 1099C. *It seems strange to me that because
> one credit card company filed 1099C,
> while the others could have, but didn't, only the income on form 1099C
> from one credit card company is reported. *Does
> one then file Form 982 with the return, reducing tax attributes only
> by the amount on the 1099C?


I wouldn't swear to it, but I think the 1099-C instructions say not to
issue one when the debt was discharged in bankruptcy. That would
explain why only one issuer issued a 1099-C, which must be addressed
on the return or the IRS computers are going to bother the taxpayer
down the road.

Adjustments related to bankruptcy is a totally separate issue, which
I'm happy to say is beyond my pay grade.

Phil Marti
VITA/TCE Volunteer
Clarksburg, MD

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<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
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<< that may be imposed upon the taxpayer. >>
<< >>
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