by Fresh Start Tax | Mar 7, 2018 | Tax Help
Cancelled Debt – Is It Taxable or Not?
Having IRS problems, call us today 1-866-700-1040
If you borrow money and are legally obligated to repay a fixed or determinable amount at a future date, you have a debt.
You may be personally liable for a debt or may own a property that’s subject to a debt.
If your debt is forgiven or discharged for less that the full amount you owe, the debt is considered cancelled in the amount that you don’t have to pay.
The law provides several exceptions, however, in which the amount you don’t have to pay isn’t cancelled debt. These exceptions will be discussed later.
Cancellation of a debt may occur if the creditor can’t collect, or gives up on collecting, the amount you’re obligated to pay.
If you own property subject to a debt, cancellation of the debt also may occur because of a foreclosure, a repossession, a voluntary transfer of the property to the lender, abandonment of the property, or a mortgage modification.
In general, if you have cancellation of debt income because your debt is cancelled, forgiven, or discharged for less that the amount you must pay, the amount of the cancelled debt is taxable and you must report the cancelled debt on your tax return for the year the cancellation occurs.
The cancelled debt isn’t taxable, however, if the law specifically allows you to exclude it from gross income. These specific exclusions will be discussed later.
After a debt is cancelled, the creditor may send you a Form 1099-C.pdf, Cancellation of Debt, showing the amount of cancellation of debt and the date of cancellation, among other things.
If you received a Form 1099-C showing incorrect information, contact the creditor to make corrections. For example, if the creditor is continuing to try to collect the debt after sending you a Form 1099-C, the creditor may not have cancelled the debt and, as a result, you may not have income from a cancelled debt.
You should verify with the creditor your specific situation.
Your responsibility to report the taxable amount of cancelled debt as income on your tax return for the year when the cancellation occurs doesn’t change whether or not you receive a correct Form 1099-C.
In general, you must report any taxable amount of a cancelled debt as ordinary income from the cancellation of debt on Form 1040.pdf, U.S. individual Income Tax Return, or Form 1040NR.pdf, U.S. Nonresident Alien Income Tax Return, as “other income” on line 21 if the debt is a non-business debt, or an applicable schedule if the debt is a business debt.
Caution:
If property secured your debt and the creditor takes that property in full or partial satisfaction of your debt, you’re treated as having sold that property. Your amount realized and ordinary income depend on whether you are personally liable for the debt (recourse debt) or not personally liable for the debt (non-recourse debt).
If your property was subject to a recourse debt, your amount realized is the fair market value (FMV) of the property. Your ordinary income from the cancellation of the debt is the amount of the debt in excess of the FMV of the property that the lender forgives. You must include this cancellation of debt in your income unless an exception or exclusion, discussed below, applies.
If your property was subject to a non-recourse debt, your amount realized is the entire amount of the non-recourse debt plus the amount of cash and the FMV of any property you received.
You will not have ordinary income from the cancellation of the debt. See Publication 4681.pdf, Cancelled Debts, Foreclosures, Repossessions, and abandonment (for individuals).
Amounts that meet the requirements for any of the following exceptions aren’t cancellation of debt income.
EXCEPTIONS to Cancellation of Debt Income:
1. Amounts cancelled as gifts, , devises, or inheritances
2. Certain qualified student loans cancelled under the loan provisions that the loans would be cancelled if you work for a certain period of time in certain professions for a broad class of employers
3. Certain other education loan repayment or loan forgiveness programs to help provide health services in certain areas.
4. Amounts of cancelled debt that would be deductible if you, as a cash basis taxpayer, paid it
5. A qualified purchase price reduction given by the seller of property to the buyer
6. Any Pay-for-Performance Success Payments that reduce the principal balance of your home mortgage under the Home Affordable Modification Program
Amounts that meet the requirements for any of the following exclusions aren’t included in income, even though they’re cancellation of debt income.
EXCLUSIONS from Gross Income:
1. Debt cancelled in a Title 11 bankruptcy case
2. Debt cancelled during insolvency
3. Cancellation of qualified farm indebtedness
4. Cancellation of qualified real property business indebtedness
5. Cancellation of qualified principal residence indebtedness that is discharged subject to an arrangement that is entered into and evidenced in writing before January 1, 2018.
Generally, if you exclude cancelled debt from income under one of the exclusions listed above, you must reduce certain tax attributes (certain credits and carryovers, losses and carryovers, basis of assets, etc.) (but not below zero) by the amount excluded.
You must attach to your tax return a Form 982.pdf, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), to report the amount qualifying for exclusion and any corresponding reduction of those tax attributes.
For cancellation of qualified principal residence indebtedness that you exclude from income, you must only reduce your basis in your principal residence.
Did You Receive a 1099-C, It May Not Be TAXABLE + Fresh Start Tax LLC
by Fresh Start Tax | Mar 7, 2018 | Tax Help
Cancelled Debt – Is It Taxable or Not?
Having IRS problems, call us today 1-866-700-1040
If you borrow money and are legally obligated to repay a fixed or determinable amount at a future date, you have a debt.
You may be personally liable for a debt or may own a property that’s subject to a debt.
If your debt is forgiven or discharged for less that the full amount you owe, the debt is considered cancelled in the amount that you don’t have to pay.
The law provides several exceptions, however, in which the amount you don’t have to pay isn’t cancelled debt. These exceptions will be discussed later.
Cancellation of a debt may occur if the creditor can’t collect, or gives up on collecting, the amount you’re obligated to pay. If you own property subject to a debt, cancellation of the debt also may occur because of a foreclosure, a repossession, a voluntary transfer of the property to the lender, abandonment of the property, or a mortgage modification.
In general, if you have cancellation of debt income because your debt is cancelled, forgiven, or discharged for less that the amount you must pay, the amount of the cancelled debt is taxable and you must report the cancelled debt on your tax return for the year the cancellation occurs.
The cancelled debt isn’t taxable, however, if the law specifically allows you to exclude it from gross income. These specific exclusions will be discussed later.
After a debt is cancelled, the creditor may send you a Form 1099-C.pdf, Cancellation of Debt, showing the amount of cancellation of debt and the date of cancellation, among other things.
If you received a Form 1099-C showing incorrect information, contact the creditor to make corrections. For example, if the creditor is continuing to try to collect the debt after sending you a Form 1099-C, the creditor may not have cancelled the debt and, as a result, you may not have income from a cancelled debt.
You should verify with the creditor your specific situation.
Your responsibility to report the taxable amount of cancelled debt as income on your tax return for the year when the cancellation occurs doesn’t change whether or not you receive a correct Form 1099-C.
In general, you must report any taxable amount of a cancelled debt as ordinary income from the cancellation of debt on Form 1040.pdf, U.S. individual Income Tax Return, or Form 1040NR.pdf, U.S. Nonresident Alien Income Tax Return, as “other income” on line 21 if the debt is a non-business debt, or an applicable schedule if the debt is a business debt.
Caution:
If property secured your debt and the creditor takes that property in full or partial satisfaction of your debt, you’re treated as having sold that property. Your amount realized and ordinary income depend on whether you are personally liable for the debt (recourse debt) or not personally liable for the debt (non-recourse debt).
If your property was subject to a recourse debt, your amount realized is the fair market value (FMV) of the property. Your ordinary income from the cancellation of the debt is the amount of the debt in excess of the FMV of the property that the lender forgives. You must include this cancellation of debt in your income unless an exception or exclusion, discussed below, applies.
If your property was subject to a non-recourse debt, your amount realized is the entire amount of the non-recourse debt plus the amount of cash and the FMV of any property you received.
You will not have ordinary income from the cancellation of the debt. See Publication 4681.pdf, Cancelled Debts, Foreclosures, Repossessions, and abandonment (for individuals). See also Publication 544, Sales and Other Dispositions of Assets, and Publication 523, Selling Your Home, for detailed information on reporting gain or loss from repossession, foreclosure, or abandonment of property.
Amounts that meet the requirements for any of the following exceptions aren’t cancellation of debt income.
EXCEPTIONS to Cancellation of Debt Income:
1. Amounts cancelled as gifts, , devises, or inheritances
2. Certain qualified student loans cancelled under the loan provisions that the loans would be cancelled if you work for a certain period of time in certain professions for a broad class of employers
3. Certain other education loan repayment or loan forgiveness programs to help provide health services in certain areas.
4. Amounts of cancelled debt that would be deductible if you, as a cash basis taxpayer, paid it
5. A qualified purchase price reduction given by the seller of property to the buyer
6. Any Pay-for-Performance Success Payments that reduce the principal balance of your home mortgage under the Home Affordable Modification Program
Amounts that meet the requirements for any of the following exclusions aren’t included in income, even though they’re cancellation of debt income.
EXCLUSIONS from Gross Income:
1. Debt cancelled in a Title 11 bankruptcy case
2. Debt cancelled during insolvency
3. Cancellation of qualified farm indebtedness
4. Cancellation of qualified real property business indebtedness
5. Cancellation of qualified principal residence indebtedness that is discharged subject to an arrangement that is entered into and evidenced in writing before January 1, 2018.
Generally, if you exclude cancelled debt from income under one of the exclusions listed above, you must reduce certain tax attributes (certain credits and carryovers, losses and carryovers, basis of assets, etc.) (but not below zero) by the amount excluded.
You must attach to your tax return a Form 982.pdf, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), to report the amount qualifying for exclusion and any corresponding reduction of those tax attributes.
For cancellation of qualified principal residence indebtedness that you exclude from income, you must only reduce your basis in your principal residence.
by Fresh Start Tax | Mar 1, 2018 | Tax Help
What to do when filing your tax return.
Most taxpayers claim the standard deduction when they file their federal tax return.
However, some filers may be able to lower their tax bill by itemizing when they file their 2017 tax return. Before choosing to take the standard deduction or itemize, it’s a good idea to figure deductions using both methods and choose the method with the most benefit. The IRS offers the following tips to help taxpayers decide:
Figure Itemized Deductions. Taxpayers who itemize basically add up the year’s deductible expenses to arrive at their total deduction.
Deductions include:
Home mortgage interest
State and local income taxes or sales taxes – but not both
Real estate and personal property taxes
Gifts to charities
Casualty or theft losses
Unreimbursed medical and employee business expenses above certain amounts
Know the Standard Deduction.
For taxpayers who don’t itemize, the standard deduction for 2017 depends on their filing status:
Single — $6,350
Married Filing Jointly — $12,700
Head of Household — $9,350
Married Filing Separately — $6,350
Qualifying Widow(er) — $12,700
If a taxpayer is 65 or older, or blind, the standard deduction is more, but may be limited if another person claims that taxpayer as a dependent.
Check the Exceptions.
There are some rejections where the law doesn’t allow people to claim the standard deduction.
his rule applies to married taxpayers who file separate returns, and either spouse itemizes. In this case, the standard deduction is zero and they should itemize any deductions.
Use IRS.gov Tool. Use the Interactive Tax Assistant on IRS.gov. There are several tools that can help people determine whether to itemize or take the standard deduction.
F
by Fresh Start Tax | Feb 27, 2018 | Tax Help
Fresh Start Tax LLC is an Affordable professional tax firm with over 95 years of direct IRS work experience. Since 1982.
Call us today for a free initial tax consultation and find out if you are eligible for an IRS tax settlement to settle for pennies on the dollar if you qualify. 1-866-700-1040
Negotiation with the IRS over back taxes is the job of the seasoned tax professional who knows the systems and the methodologies and the formulas of the Internal Revenue Service.
IRS has a very specific formula that they use to compute the offer in compromise which is the vehicle to reduce your tax debt.
I have over 40 years in this industry and it is critical if you want to settle your tax debt for the lowest possible amount you should go to true tax professionals.
I can tell you within minutes reviewing your current financial statement whether you are a true candidate for the offer in compromise program to settle your tax debt.
We can review with you the different IRS tax debt settlement programs and find out if you are a qualified and eligible for any of the IRS programs.
Other ways to settle, Negotiate Tax Debt or Reduce Your Tax Debt
As a general rule, you may apply for hardships, payment agreements or settle for an offer in compromise to settle your debt for pennies on the dollar.
We will review with you your financial statement and let you know what the lowest possible settlement IRS will accept.
STATS :
40% of all persons that owe back taxes are issue into a hardship or are currently not collectible status and 6.5 million taxpayers enter into annual payment agreements.
If you want to settle for less on an IRS tax debt you must know the system. The system is all about the formulas and the methods that IRS uses to settle their tax debt.
The IRS tax debt settlement program is called the offer in compromise.
If you want to file an offer in compromise I thought you’d like to know what the statistics are.
Last year over 78,000 offers in compromise/IRS tax debt settlement were filed by taxpayers and over 38% of those were accepted for average of $6500 per case.
At the current time there are 7500 cases in the offer queue. The average wait time is nine months. There are not enough IRS employees to work the current inventory.
Keep in mind this is a national average in your case is completely dependent on your individual financial statement.
We will not file for an offer in compromise unless you are a true candidate for the program. There is a pre qualifier tool to find out if you are a settlement candidate for income or business tax debt.
Upon your initial tax consultation we’ll let you know if you are eligible to have an accepted offer in compromise by the Internal Revenue Service.
Due to the new fresh start tax initiative Internal Revenue Service had made it easier to file for the program. However this program is not for everybody.
Everyone wants to settle with IRS but there is a very specific format and methodology that must be followed.
There are many myths about the pennies on the dollar program so you need to hear the truth before spending any money.
There are many firms that take your money and then let you know after the fact you are not qualified. you need to know before hand whether you have a fighting chance. being a former IRS agent employee gives you a huge advantage of having the review your offer in compromise to settle your tax debt.
IRS Tax Debt Settlement Program to Reduce Your Tax Debt is Called the Offer in Compromise
At our firm we will take no clients money until we are no they are a true candidate for the settlement program.
There are many myths about the offer in compromise so IRS and in their great wisdom provides a pre-qualifier tool to find out if taxpayers are eligible for the offer in compromise program so taxpayers do not give their hard-earned money to unsuspecting tax firms promising tax settlement s.
If you have any questions or issues about the offer in compromise program to settle or negotiate your debt for pennies on the dollar, call us today and we will review your case to let you know if you are a qualified and suitable candidate.
The IRS spends a lot of due diligence before they accept an offer in compromise.
It is possible for the IRS to spend over 20 hours working an offer in compromise. IRS uses the Accuriant search engine, Google in a variety of other searches to check on assets and histories of taxpayers and businesses.
You want to make sure you are very accurate and truthful on your financial statement.
On cases over $100,000 it is typical they will check your credit report for the accuracy of your financial statement. The higher the dollar case the greater the due diligence.
Many people ask why is this process not that simple.
The answer is this, all accepted offers in compromise are a matter of public record for one year in the regional office where the offer was accepted.
The Internal Revenue Service does all that it can to make sure there is a matter of consistency within the offer in compromise program if not still be a tremendous public outcry.
One base rule for the offer in compromise program. IRS is only concerned about your income and assets. this includes your equity in your home, pension plans are IRA’s.
One nice thing about the IRS accepting your offer in compromise is that once you meet the terms of the settlement they will release your federal tax lien.
Below you will find out what you need to know about the offer in compromise program.
Beginning immediately:
The IRS will return any newly filed Offer in Compromise application where the taxpayer has not filed all required tax returns.
Any fees included with the OIC will also be returned.
This new policy does not apply to current year tax returns if there is a valid extension on file.
IRS will consider your unique set of facts and circumstances:
• Ability to pay;
• Income;
• Expenses; and
• Asset equity.
IRS will generally approve an offer in compromise when the amount offered represents the most we can expect to collect within a reasonable period of time.
Make sure you are eligible for the offer in compromise to settle your tax debt.
Before IRS can consider your offer, you must be current with all filing and payment requirements.
You are not eligible if you are in an open bankruptcy proceeding.
Use the Offer in Compromise Pre-Qualifier to confirm your eligibility and prepare a preliminary proposal.
Submit your offer in compromise to settle your tax debt
You’ll find step-by-step instructors and all the forms for submitting an offer in the Offer in Compromise Booklet, Form 656-B (PDF). Your completed offer package will include:
• Form 433-A (OIC) (individuals) or 433-B (OIC) (businesses) and all required documentation as specified on the forms;
• Form 656(s) – individual and business tax debt (Corporation/ LLC/ Partnership) must be submitted on separate Form 656;
• $186 application fee (non-refundable); and
• Initial payment (non-refundable) for each Form 656.
Select a payment option to Reduce Your Tax Debt
Your initial payment will vary based on your offer and the payment option you choose:
• Lump Sum Cash:
Submit an initial payment of 20 percent of the total offer amount with your application. Wait for written acceptance, then pay the remaining balance of the offer in five or fewer payments.
• Periodic Payment:
Submit your initial payment with your application. Continue to pay the remaining balance in monthly installments while the IRS considers your offer. If accepted, continue to pay monthly until it is paid in full.
If you meet the Low Income Certification guidelines, you do not have to send the application fee or the initial payment and you will not need to make monthly installments during the evaluation of your offer.
Understand the process to settle your tax debt
While your offer is being evaluated:
• Your non-refundable payments and fees will be applied to the tax liability (you may designate payments to a specific tax year and tax debt);
• A Notice of Federal Tax Lien may be filed;
• Other collection activities are suspended;
• The legal assessment and collection period is extended;
• Make all required payments associated with your offer;
• You are not required to make payments on an existing installment agreement; and
• Your offer is automatically accepted if the IRS does not make a determination within two years of the IRS receipt date.
Call us today for free initial tax consultation and speak to a true IRS tax expert who will walk you through the process of how to negotiate with IRS over back taxes.
Our free consultation will give you true expert advice and help you evaluate your next step.
Fresh Start Tax + How to Reduce Your IRS Tax Debt
by Fresh Start Tax | Feb 27, 2018 | Tax Help
I am a Former IRS Agent and Teaching Instructor with the IRS. Call to learn the honest truth about tax debt reduction.
My firm, Fresh Start Tax LLC.
We are an Affordable professional tax firm with over 95 years of direct IRS work experience. Since 1982.
Call us today for a free initial tax consultation and find out if you are eligible for an IRS tax settlement to settle for pennies on the dollar if you qualify.
Negotiation with the IRS over back taxes is the job of the seasoned tax professional who knows the systems and the methodologies and the formulas of the Internal Revenue Service.
IRS has a very specific formula that they use to compute the offer in compromise which is the vehicle to reduce your tax debt.
I have over 40 years in this industry and it is critical if you want to settle your tax debt for the lowest possible amount you should go to true tax professionals.
I can tell you within minutes reviewing your current financial statement whether you are a true candidate for the offer in compromise program to settle your tax debt.
We can review with you the different IRS tax debt settlement programs and find out if you are a qualified and eligible for any of the IRS programs.
Other ways to settle, Negotiate Tax Debt or Reduce Your Tax Debt
As a general rule, you may apply for hardships, payment agreements or settle for an offer in compromise to settle your debt for pennies on the dollar.
We will review with you your financial statement and let you know what the lowest possible settlement IRS will accept.
STATS :40% of all persons that owe back taxes are issue into a hardship or are currently not collectible status and 6.5 million taxpayers enter into annual payment agreements.
If you want to settle for less on an IRS tax debt you must know the system. The system is all about the formulas and the methods that IRS uses to settle their tax debt.
The IRS tax debt settlement program is called the offer in compromise.
If you want to file an offer in compromise I thought you’d like to know what the statistics are.
Last year over 78,000 offers in compromise/IRS tax debt settlement were filed by taxpayers and over 38% of those were accepted for average of $6500 per case.
At the current time there are 7500 cases in the offer queue. The average wait time is nine months. There are not enough IRS employees to work the current inventory.
Keep in mind this is a national average in your case is completely dependent on your individual financial statement.
We will not file for an offer in compromise unless you are a true candidate for the program. There is a pre qualifier tool to find out if you are a settlement candidate for income or business tax debt.
Upon your initial tax consultation we’ll let you know if you are eligible to have an accepted offer in compromise by the Internal Revenue Service.
Due to the new fresh start tax initiative Internal Revenue Service had made it easier to file for the program. However this program is not for everybody. Everyone wants to settle with IRS but there is a very specific format and methodology that must be followed.
There are many myths about the pennies on the dollar program so you need to hear the truth before spending any money.
There are many firms that take your money and then let you know after the fact you are not qualified. you need to know before hand whether you have a fighting chance. being a former IRS agent employee gives you a huge advantage of having the review your offer in compromise to settle your tax debt.
IRS Tax Debt Settlement Program to Reduce Your Tax Debt is Called the Offer in Compromise
At our firm we will take no clients money until we are no they are a true candidate for the settlement program.
There are many myths about the offer in compromise so IRS and in their great wisdom provides a pre-qualifier tool to find out if taxpayers are eligible for the offer in compromise program so taxpayers do not give their hard-earned money to unsuspecting tax firms promising tax settlement s.
If you have any questions or issues about the offer in compromise program to settle or negotiate your debt for pennies on the dollar, call us today and we will review your case to let you know if you are a qualified and suitable candidate.
The IRS spends a lot of due diligence before they accept an offer in compromise.
It is possible for the IRS to spend over 20 hours working an offer in compromise. IRS uses the Accuriant search engine, Google in a variety of other searches to check on assets and histories of taxpayers and businesses.
You want to make sure you are very accurate and truthful on your financial statement.
On cases over $100,000 it is typical they will check your credit report for the accuracy of your financial statement. The higher the dollar case the greater the due diligence.
Many people ask why is this process not that simple.
The answer is this, all accepted offers in compromise are a matter of public record for one year in the regional office where the offer was accepted.
The Internal Revenue Service does all that it can to make sure there is a matter of consistency within the offer in compromise program if not still be a tremendous public outcry.
One base rule for the offer in compromise program. IRS is only concerned about your income and assets. this includes your equity in your home, pension plans are IRA’s.
One nice thing about the IRS accepting your offer in compromise is that once you meet the terms of the settlement they will release your federal tax lien.
Below you will find out what you need to know about the offer in compromise program.
Beginning immediately:
The IRS will return any newly filed Offer in Compromise application where the taxpayer has not filed all required tax returns.
Any fees included with the OIC will also be returned.
This new policy does not apply to current year tax returns if there is a valid extension on file.
IRS will consider your unique set of facts and circumstances:
• Ability to pay;
• Income;
• Expenses; and
• Asset equity.
IRS will generally approve an offer in compromise when the amount offered represents the most we can expect to collect within a reasonable period of time.
Make sure you are eligible for the offer in compromise to settle your tax debt.
Before IRS can consider your offer, you must be current with all filing and payment requirements.
You are not eligible if you are in an open bankruptcy proceeding.
Use the Offer in Compromise Pre-Qualifier to confirm your eligibility and prepare a preliminary proposal.
Submit your offer in compromise to settle your tax debt
in Compromise Booklet, Form 656-B (PDF). Your completed offer package will include:
• Form 433-A (OIC) (individuals) or 433-B (OIC) (businesses) and all required documentation as specified on the forms;
• Form 656(s) – individual and business tax debt (Corporation/ LLC/ Partnership) must be submitted on separate Form 656;
• $186 application fee (non-refundable); and
• Initial payment (non-refundable) for each Form 656.
Select a payment option to Reduce Your Tax Debt
Your initial payment will vary based on your offer and the payment option you choose:
• Lump Sum Cash:
Submit an initial payment of 20 percent of the total offer amount with your application. Wait for written acceptance, then pay the remaining balance of the offer in five or fewer payments.
• Periodic Payment:
Submit your initial payment with your application. Continue to pay the remaining balance in monthly installments while the IRS considers your offer. If accepted, continue to pay monthly until it is paid in full.
If you meet the Low Income Certification guidelines, you do not have to send the application fee or the initial payment and you will not need to make monthly installments during the evaluation of your offer.
Understand the process to settle your tax debt
While your offer is being evaluated:
• Your non-refundable payments and fees will be applied to the tax liability (you may designate payments to a specific tax year and tax debt);
• A Notice of Federal Tax Lien may be filed;
• Other collection activities are suspended;
• The legal assessment and collection period is extended;
• Make all required payments associated with your offer;
• You are not required to make payments on an existing installment agreement; and
• Your offer is automatically accepted if the IRS does not make a determination within two years of the IRS receipt date.
Call us today for free initial tax consultation and speak to a true IRS tax expert who will walk you through the process of how to negotiate with IRS over back taxes.
Our free consultation will give you true expert advice and help you evaluate your next step.
Michael D. Sullivan + How to Reduce Your IRS Tax Debt
