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Gary Bode, CPA is a Master's Degreed, nation wide accountant offering tax and business services. Member of AICPA and NCACPA. Our virtual office provides excellent service to long distance and international clients. Call (910) 399-2705 for a free phone consult.

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I became totally and permanently disabled after a working for 44 years. I returned to college late in life (while working full-time) to fulfill my dream of becoming an RN and at that time found it necessary to secure student loans. Three years after being declared totally and permanently disabled my student loans were discharged. In January 2013 we received a 1099-C form declaring said student loans that were discharged however that amount could be considered as income for 2012. This was a large amount of money and we live on two pensions and social security income.

I started looking on the internet for information regarding 1099-C and felt that this was something that we could not handle alone. I made phone calls locally to a very reputable tax group in a city near us and they said it would cost $500 for an appointment and that they really prefer to do corporate taxes and they referred me to a local person who had worked for them at one time, we called and explained the situation and an appointment was made and then the comment was made that "I will have to do some research on this" and flags immediately went up and we called back and cancelled that appointment. I had been researching the IRSwebsite and every place else I could think of and I was not comfortable doing our own taxes this year. We called another local tax preparer that we had used in the past and made an appointment, however prior to the appointment, while still seeking information regarding our situation,

I came across a website for Gary l. Bode, MSA, CPA, PC in Wilmington, NC. I called Mr. Bodeand explained our situation and asked if he could help. He spoke very knowledgeably regarding the situation and stated that yes; he felt he could help us. As Mr. Bode was in North Carolina and we were in New York I scanned all of our documents including back-up documents for all of our claims and forwarded all to him. Mr. Bode kept in touch with us via email; we have spoken on the telephone several times and have become very comfortable with his knowledge and professionalism. Also, as I am a true "worrier" I have continued looking into information regarding our tax situation and I came upon another web page for Mr. Bode that included testimonials which spoke of his experience with this type of tax situation as it became prevalent during the recession. This reinforced in our minds that we had made the right decision in hiring this person as our tax preparer.

I share all of this as our taxes are now ready to be filed (we do owe tax for 2012 but not the astronomical figure we thought we were facing), and we are confident that they have been prepared with the utmost care by a gentleman who has an excellent working knowledge of the situation we faced and the tax laws that were applicable to said situation.


Bill and Carol

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IRS Insolvency Worksheet tips by Cancelled Debt CPA tax preparer

IRS Insolvency Worksheet CPA Cancelled Debt CPA

The IRS Insolvency Worksheet calculates “discharge of indebtedness to the extent insolvent (not in a title 11 case)” for Line 2 of Form 982. We prepare tax returns. Distance isn’t an issue because of our virtual office. (910) 399-2705.

Cancelled debt CPA tax preparers hear and read lots of confusion over the IRS insolvency worksheet. Here’s a list of names I’ve heard for it:

  • 982 form insolvency.
  • 1099-C insolvency.
  • Publication 4681 insolvency.
  • Exclusion of debt insolvency.
  • Insolvent paper.
  • 1099-A insolvency.
  • IRS bankruptcy sheet.
  • 982 Part I insolvency.

I’ll offer an overview of the:

  • IRS Insolvency Worksheet.
  • Give some tips I’ve learned a cancelled debt CPA.
  • Answer some FAQs

The most frequent confusion over the IRS insolvency worksheet?

While the IRS insolvency worksheet calculates your insolvency (the amount you’re insolvent), insolvency is only one way to exclude the amount of debt discharged in Box 2 of Form 1099-C, Cancellation of Debt, from becoming taxable income on Line 21 of Form 1040.

Tip: The Golden Rule of Cancelled Debt tax preparation? Pay no tax on the amount of debt discharged in Box 2 of Form 1099-C without squeezing every dollar of exclusion out of Form 982, Reduction of Tax Attributes.

The IRS Insolvency Worksheet doesn’t prevent you from using other Form 982, Part I exclusions

You can use more than one exclusion in Form 982 Part I.

The IRS Insolvency Worksheet uses the date of identifiable event in Box 1 of Form 1099-C, Cancellation of Debt

It’s not automatically December 31st.

You may be able to challenge the date on Form 1099-C, Cancellation of Debt

The lender has to follow IRS protocol when issuing Form 1099-C.

Tip: Consider calculating the IRS Insolvency Worksheet for the date you believe correct. If there’s decreased tax liability using that date maybe you can get the bank to correct Form 1099-C, or make a case with the IRS for a better date.

Box 5 of Form 1099-C; Check here if the debtor was personally liable for repayment of the debt

If Box 5 of Form 1099-C isn’t checked, you may not be responsible for the debt discharged in Box 2 of Form 1099-C. But I wouldn’t rely on it. The IRS could audit your tax return and generate a Notice CP2000 proposing tax on the amount in Box 2 of Form 1099-C.

Tip: Consider providing an explanation and documentation with your tax return proving you weren’t responsible for the debt. Otherwise the IRS might audit you despite Box 5 being unchecked.

Tip: Consider calculating the tax consequences of a Form 1099-C using the IRS insolvency Worksheet. If there are no present or future tax consequences, maybe it’s better to include the cancelled debt and then exclude it on Form 982, Reduction of Tax Attributes, even if Box 5 isn’t checked.

Recourse and Non Recourse Loans in the Liability section of the IRS Insolvency Worksheet

  • A recourse loan is when you are personally responsible for paying back the loan.
  • A non recourse loan means you aren’t personally responsible to pay back the debt.
    • A common example is a mortgage for rental real estate where the loan is secured by the rental property only, without you being on the hook for it.

You don’t have to file the IRS Insolvency Worksheet with your tax return

You just enter the result from the IRS insolvency worksheet to Form 982.

Tip: Keep the worksheet, and it’s documentation, for your records. It’s reasonable to assume the IRS nay ask for it.

You can use some estimates on the IRS Insolvency Worksheet

Let’s use the Jewelry line in the asset section of the worksheet as an example. Even though you paid, say, $1,000 for your jewelry, the average person couldn’t sell it for that amount in a reasonable amount of time. You’d use a Craig’s list value or pawn shop value for the jewelry for the insolvency worksheet. But if have an $8,000 engagement ring, maybe you should get an appraisal for it as documentation for the insolvency worksheet.

Married Filing Jointly status and Married Filing separately status

Sometime a married couple can exclude more of the cancelled debt from a Form 1099-C by filing separate tax returns allowing them to calculate only their own insolvency for the worksheet.

Tip: check the total amount of tax due for both methods, not just of the amount of discharged debt you can exclude on Form 982

When possible back up IRS Insolvency Worksheet numbers

With larger dollar value assets and liabilities try to back those numbers up with documentation. For example your mortgage lender can provide a statement for the outstanding balance for a given date. A real estate broker can give a value for your home on a given day. Save documentation with insolvency worksheet for seven years.

Modifying the IRS Insolvency Worksheet to help with the Reduction of tax attributes section of Form 982

Tip: I usually add a column to the assets section of the IRS insolvency worksheet asset section to list the purchase price of your assets. Often you’ll need those numbers for Part II of Form 982.





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