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Tax Question: Cancelation of Debt Trap in Chapter 13?
Reread 108. If you are insolvent, you may have to reduce basis, but not pay tax on income.
Sent from my iPhone
On Feb 15, 2012, at 2:27 PM, "Steven B. Lever" wrote:
> List mates:
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> FACTS: Rental property will be surrendered in Chapter 13 case and there will be cancelation of indebtedness on the second mortgage.
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> ISSUE: If the mortgage holder issues a 1099C during one of the early years of the case, will it be excluded from Gross Income, as the discharge only comes much later?
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> RULE: If debt is discharged in bankruptcy first, there is not debt to cancel; see IRC Section 108.
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> ANALYSIS: In a Chapter 7 the automatic stay holds off the foreclosure and then typically the discharge is entered before the foreclosure, or at least the same year. However, in a 13, if the lender gets relief from stay and then forecloses the discharge will not be until future years, long after the 1099C was issued. Perhaps the IRS/FTB are precluded from assessing the tax in the 1099C year, but that is unlikely because all Chapter 13 clients pay their taxes every year, with at least the self-assessment of filing tax returns.
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> CONCLUSION: Thats what Im wondering.
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> Steve
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> Law Offices of Steven B. Lever
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> > Steven B. Lever
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> >( Tel. (562) 436-5456 ext. 6470
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> >( Fax (800) 360-5161
>
> >* sblever@leverlaw.com
>
> > www.leverlaw.com
>
> > ******************************************************
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Reread 108. If you are insolvent, you may have to reduce basis, but not pay tax on income. Sent from my iPhoneOn Feb 15, 2012, at 2:27 PM, "Steven B. Lever" <sblever@leverlaw.com> wrote:
CONCLUSION: Thats what Im wondering. Steve >( Fax (800) 360-5161>* sblever@leverlaw.com> www.leverlaw.com> ******************************************************
The post was migrated from Yahoo.
List mates:
FACTS: Rental property will be surrendered in Chapter 13 case and there
will be cancelation of indebtedness on the second mortgage.
ISSUE: If the mortgage holder issues a 1099C during one of the early
years of the case, will it be excluded from Gross Income, as the
discharge only comes much later?
RULE: If debt is discharged in bankruptcy first, there is not debt to
cancel; see IRC Section 108.
ANALYSIS: In a Chapter 7 the automatic stay holds off the foreclosure
and then typically the discharge is entered before the foreclosure, or
at least the same year. However, in a 13, if the lender gets relief
from stay and then forecloses the discharge will not be until future
years, long after the 1099C was issued. Perhaps the IRS/FTB are
precluded from assessing the tax in the 1099C year, but that is unlikely
because all Chapter 13 clients pay their taxes every year, with at least
the self-assessment of filing tax returns.
CONCLUSION: That's what I'm wondering.
Steve
Law Offices of Steven B. Lever
>
> Steven B. Lever
>( Tel. (562) 436-5456 ext. 6470
>( Fax (800) 360-5161
>* sblever@leverlaw.com
> www.leverlaw.com
> ******************************************************
The post was migrated from Yahoo.