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Tax Question: Cancelation of Debt Trap in Chapter13?
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The debt is not uncollectible until there is a discharge that gets rid of
it. Lender can't issue the 1099, even if there is a confirmed plan that
hoses it on 70% of the debt, because the debtor may flake out and never
complete the plan, win the lottery, and HELOC lender can collect.
But lenders aren't always rational about their issuance of 1099s. If the
debtor gets a 1099 during or after a year when he was in bankruptcy, the
debtor should file Form 982 with his return explaining why the 1099 doesn't
represent taxable income.
IRS can't assess the tax on COD income until either the taxpayer reports it
on his return, or it goes through the deficiency process audit, Tax Court,
the whole enchilada. FTB can assess as soon as it thinks it's being abused,
but it would just about never open an audit on this issue before the IRS
would.
John D. Faucher
Hurlbett & Faucher, LLP
On 2/15/12 4:32 PM, "Steven B. Lever" wrote:
>
>
>
>
>
> Mark:
>
> What about the percentage that isnt being paid? If the plan only provides
> for 30%, why couldnt they issue a 1099 for the other 70%?
>
> Steve
>
Mark
> T. Jessee
> Sent: Wednesday, February 15, 2012 3:42 PM
> To: cdcbaa@yahoogroups.com
> Subject: Re: [cdcbaa] Tax Question: Cancelation of Debt Trap in Chapter13?
>
> The 2nd Td should file a proof of claim to be paid as an unsecured creditor
> for the deficiency balance after the 1st forecloses. Lender cannot issue a
> 1099c until the debt is uncollectable. It is not uncollectable while the
> debtor is in a Chapter 13 case paying money to unsecured creditors. Issuing a
> 1099c under such circumstances is improper.
>
>
> Mark T. Jessee
> Law Offices of Mark T. Jessee
> "A Debt Relief Agency"
> 50 W. Hillcrest Drive, Suite 200
> Thousand Oaks, CA 91360
> (805) 497-5868 (805) 497-5864 (Facsimile)
>
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> On Wed, 15 Feb 2012 14:27:42 -0800, "Steven B. Lever"
> wrote:
>>
>>
>>
>> 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, bu t that is unlikely because all Chapter 13 clients pay
>> their taxes every year, with at least the self-assessment of filing tax
>> returns.
>>
>> CONCLUSION: Thats what Im 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
>>> > ******************************************************
>>
>>
>>
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>
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The debt is not uncollectible until there is a discharge that gets rid of it. Lender can't issue the 1099, even if there is a confirmed plan that hoses it on 70% of the debt, because the debtor may flake out and never complete the plan, win the lottery, and HELOC lender can collect. But lenders aren't always rational about their issuance of 1099s. If the debtor gets a 1099 during or after a year when he was in bankruptcy, the debtor should file Form 982 with his return explaining why the 1099 doesn't represent taxable income. IRS can't assess the tax on COD income until either the taxpayer reports it on his return, or it goes through the deficiency process – audit, Tax Court, the whole enchilada. FTB can assess as soon as it thinks it's being abused, but it would just about never open an audit on this issue before the IRS would. John D. FaucherHurlbett & Faucher, LLPOn 2/15/12 4:32 PM, "Steven B. Lever" <sblever@leverlaw.com> wrote:
The post was migrated from Yahoo.