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Form 982 Insolvency CPA discusses Credit Card Cancelled Debt | 1099-C CPA

Form 982 Insovency CPA

Gary Bode, CPA: you may not need a Form 982 Insolvency CPA to prepare your tax return. But consider giving us a call if you run into problems. Sometimes experience impacts the tax return’s bottom line. (910) 399-2705.

Form 982 Insolvency CPAs see lots of Form 1099-C(s) for cancelled credit card debt. Hi, I’m Gary Bode, Form 982 CPA who sees insolvency cancelled debt cases. We have a virtual CPA office to offer excellent service wherever you live. However some folks self-prepare their taxes. Here are some tips.

Here’s the usual progression of Insolvency Cancelled Credit Card debt: from cash flow to resolution.

  • Client begins to experience poor cash flow. You’re not alone.
  • Clients turn to credit card companies to finance their needs. You’re not alone.
  • Credit card companies begin to badger you once you miss a payment. You’re not alone.
  • Client settles with the credit card company. Lots of ways they do that.
  • A Credit Card company cancels some part of the credit card debt.
  • Credit Card company sends a Form 1099-C to the Client and IRS in January. Form 1099-C lists the amount of cancelled credit card debt and the date of cancellation.
  • The IRS assumes the Form 1099-C is correct.
  • The cancelled credit card debt on Form 1099-C becomes taxable income on Line 7 of Form 1040.
  • Through Form 982 you might exclude some of the cancelled debt from taxable income.
  • Insolvency is one avenue allowed on Form 982.
  • The insolvency exclusion calculated on Form 982 shows as a negative dollar amount on Line 27 of Form 1040.

Common Problems Form 982 Insolvency CPAs see:

  • Form 1099-C never arrives. Client doesn’t understand the tax obligations, so the cancelled credit card isn’t included on Line 21 of Form 1040. The IRS eventually sends you  a CP 2000 Notice demanding taxes on the entire cancelled debt amount. I’ve seen IRS demands exceeding $100,000. Ouch!
  • 1099-C isn’t correct. The amount is wrong or the date is incorrect. Remember though the IRS assumes Form 1099-C is correct until you prove differently.
  • Client doesn’t understand Form 982 and all the different sections and specialized terminology.
  • Clients must amend the earlier return to include the cancelled credit card debt and exclude it via Form 982.

Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), even sounds intimidating. We have clients who tell us other CPAs don’t want to prepare it, but I think that will be different in 2013. There’s just so much cancelled debt that more CPAs have to learn how to work with it. If you run into trouble during self-preparation of a return encompassing cancelled credit card debt and Form 982, consider giving us a call. Sometimes it’s prudent to hire an experienced CPA. (910) 399-2705.

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