Ask the Tax Resolution Expert: Back Taxes from Discharged Credit Card Debt
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QUESTION: We were sent an amended form from the IRS for our 2007 taxes. An old credit card debt.. they submitted a 1099 for this year (we never received a copy) BUT the debt was charged off/discharged according to Chase Bank records in 2005. (I called them). How can this be 2007 income? It has adjusted our taxes to where we owe back taxes now. Can the income include the interest charges for that many years? What is the ACTUAL amount that can be considered? THANKS!!!!!
~Robin
ANSWER: This sounds like the classic case of “COD” (cancellation of debt) reportable and taxable income.
There are exceptions to reporting this and paying taxes on this “income”.
If you filed for bankruptcy in the year the debt was discharged you could qualify, under IRC Section 108, for this to be treated as non-taxable income. Absent filing bankruptcy, if you can prove that you were insolvent, (liabilities in excess of assets) in the bankruptcy sense of the word, for this same period, you would also qualify to treat this as non-taxable income. However, you require expert representation of an experienced CPA or Certified Tax Resolution Specialist to represent you before the IRS in these matters.
Here is more information on how to discharge debt in bankruptcy to resolve back taxes.
I deal with tax problems every day and this year alone, my firm has successfully negotiated hundreds of IRS settlements at a rate of $0.13 on the dollar. For a free, no-risk consultation, please call my office at 866-IRS-PROBLEMS (1-866-477-7762) .
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