This is the second tax case I’m blogging about today that relates to taxability of canceled debt.
When a lender cannot collect debt and subsequently cancels the debt (which we are seeing alot of in the form of foreclosures in this struggling economy) - the IRS considers the canceled debt as taxable income.
The IRS offers guidelines for exceptions or exclusions in which canceled debts are not taxable.
Additionally, the IRS may also remove tax liabilities in the case of bankruptcy, but it’s a good idea for taxpayers to hire experienced and specialized tax experts to help them determine whether or not their taxes are eligible for discharge in bankruptcy.
CCH (http://tax.cchgroup.com/) reports:
A married couple was required to recognize cancellation of indebtedness because the husband’s credit card debt was forgiven and he did not show that he qualified for any exceptions. Because the husband defaulted on his payment plan, his bankruptcy case was dismissed, his original debts were restored and the debt was not discharged in bankruptcy. The husband did not show that he was insolvent in the tax year the debt was forgiven, nor did he produce any evidence showing that his liabilities exceeded the fair market value of his assets. Thus, the couple did not qualify for any of the Code Sec. 108 exceptions and cancellation of indebtedness income was recognized.
** For more advice and information on resolving tax debt, visit the Tax Resolution Services web site for a free tax relief consultation or call 866-IRS-PROBLEMS.
More Tax Help, IRS News and Tax Relief Tips:
- Discharging Taxes and Penalties in Bankruptcy: How Delinquent Tax Returns Can Affect Your Eligibility
- KLOS Tax Tip #28 – Many Americans Who Never Before Qualified for Tax Relief, Now Qualify
- Learn How to File For Bankruptcy Correctly to Help Solve Tax Problems and Reduce IRS Debt
- Evading Taxes on Your Tax Return – The Money You Save is Not Worth the IRS Problems You End Up Causing Yourself
- Tax Resolution News: IRS Warns Against Frivolous Tax Arguments That Can Incur Severe Penalties
Tags: cancellation of debt, disch, IRS help, IRS tax problems, Michael Rozbruch, tax attorney, tax resolution, tax resolution expert, tax resolution services, taxability of canceled debt, taxability of discharged debt