If debt is canceled in a bankruptcy case or during insolvency you must use the excluded amount of debt to reduce certain “tax attributes” including the basis of certain assets as well as losses and credits. Essentially by reducing tax attributes, the tax on the...
First off regarding income, do not include a canceled debt in gross income if any of the following situations apply: The cancellation takes place in a bankruptcy case under the U.S. Bankruptcy Code. The cancellation takes place when the debtor is insolvent, and the amount...
You are insolvent when your liabilities exceed the Fair Market Value (FMV) of your assets. It is important to determine your liabilities and the FMV of your assets immediately before the cancellation of debt to determine whether or not you are insolvent and by how much. Exclude...
According to IRS Publication 908, Bankruptcy Tax Guide, generally the automatic stay rules prevent a creditor from taking actions to collect debts incurred before a bankruptcy petition is filed. However automatic stay rules do not universally apply. Exceptions include an IRS exam to determine tax liability,...
When an individual files a bankruptcy petition under chapter 7 or 11 of the bankruptcy code a bankruptcy estate is established. The bankruptcy estate is treated as a separate taxable entity. If a trustee is appointed, the trustee is responsible for preparing and filing the...
Here is the hard part, to qualify: 1. The corporation must have ceased business operations and must have neither assets nor income for the tax year. 2. The exemption request must be submitted to the local IRS Insolvency office handling the case. For the appropriate address to...
If you are an individual debtor in a chapter 7 or 11 bankruptcy case you may be able to elect to close your tax year for the year in which the bankruptcy petition is filed as of the day before the date on which the...
This blog is my personal tax research tool. Pursuant to the rules of professional conduct set forth in US Treasury Circular 230 nothing contained in this blog was intended to be used by any taxpayer for the purpose of avoiding penalties that may be imposed by the...
This post is a brief review of IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonment (For Individuals) as it relates to mortgage debt forgiveness. If your debt is reduced or eliminated you normally will receive a year-end statement, IRS Form 1099-C, Cancellation of Debt from your lender. By law,...
Bankruptcy tax law is complicated and involves a firm grasp of time lines. Getting it right is complicated and requires reflective consideration. I learned this first hand back in 2004. If you get it wrong you loose the privilege of a more thorough 'fresh start'...