Debt Forgiveness, Bankruptcy and Form 1099C
Here comes April 15: tax time. If you've procrastinated, like many of us do when it comes to taxes, then you've got your work cut out for you. If you're an accountant, whether your clients have procrastinated or not, you also have your work cut out for you - April 15 is a busy time of year no matter what.
And if you've been a client of Sobti Law Group, you know first-hand the benefits of filing for bankruptcy. What you may not have been anticipating was Form 1099C, which is a document from a bank or other former creditor ("former" because you no longer owe the creditor any debt after bankruptcy) that, in effect, implies that you owe more on your taxes because you "gained" in income by being forgiven your debt.
Use IRS Form 982
We represent bankruptcy clients in the cities of Corona, Palm Springs, Beaumont, San Bernardino, Orange, Riverside, Chino, and Rancho Cucamonga - and the one thing in common with every bankruptcy client from these cities is that they think Form 1099C is the biggest thorn in their side, because they've already filed for bankruptcy and made it through the process. They thought they were done with everything.
These clients are done with most everything, except Form 1099C, as long as you let your accountant know about it, or you otherwise deal with it on your own by filing IRS Form 982. Now, as bankruptcy attorneys, we are not tax attorneys, tax consultants, or accountants. Our core area is bankruptcy law. As such, we could be wrong in downplaying Form 1099C. But we probably aren't.
Just know that the law allows you to avoid paying additional taxes because of Form 1099C - so deal with it promptly by telling your accountant about it or filing the form yourself if you routinely handle your taxes on your own.