Open 24 hrs / 7 Days A Week
Real Tax Attorneys For Real Tax Issues

Fast Action. Proven Results.


When cancelation of debt becomes income

Michigan taxpayers heavily in debt often have only a limited number of options. If they fail to make a house payment, they can face foreclosure. On the other hand, if they negotiate with creditors to reduce the amount of debt they owe, they may then have to pay additional taxes. This is especially common with forgiveness of credit card debt.

Lenders are required to issue a 1099-C concerning the forgiveness or cancellation of debt. The 1099-C will specifically list the amount of debt that will go unpaid. This amount in turn the taxpayer must report as income.

The specifics concerning a 1099-C

When a debt collector agrees to forgive $600 or more in debt from the original balance, they must then submit a 1099-C to the IRS. Those owing at least this amount of forgiven or canceled debt may receive a 1099-C and thus be required to report the forgiven debt as income on their tax forms. While this seems straightforward, most people struggling with debt are probably not thinking about tax issues when trying to make the debt goes away.

There are six exceptions to having to pay taxes upon this forgiven debt, however. Such exceptions would include:

  • Cancelation of debt when the individual is insolvent
  • Bankruptcy discharge of debt
  • Forgiveness of student loans after a period when the individual was working
  • Forgiveness of interest that would otherwise be deductible
  • When the cancelled debt was a part of a gift
  • Business and farm exclusions listed under Form 982

As is to be expected, such exceptions contain a number of conditions. Determining whether such conditions apply to your circumstances can be difficult, and it’s often necessary to have an experienced tax attorney provide guidance regarding such matters. Tax rules can prove extraordinarily complex and often obscure.

You have the right to take advantage of the laws in making certain you owe as little in taxes as possible. Yet providing inaccurate information to the IRS or not supplying required information at all can only lead to problems. The IRS can harshly penalize taxpayers in a number of ways.

No Comments

Leave a comment
Comment Information

When you hire us, we can help: you:

  • Obtain emergency relief from IRS actions
  • Stop the IRS from garnishing your wages
  • Prevent levees from being placed on your bank accounts
  • Keep tax payments and penalties from spiraling out of control

Phone Answered 24/7

We are always available to answer your questions and put your mind at ease.

Call us today at
800-778-2741 for a free initial consultation

Competitive Pricing

We offer flat fees that fit your needs and your budget.

Read Our Pricing FAQ

What Past Clients Say About Us

I know I won't be getting those frightening letters anymore thanks to Chad Silver - such a weight off my mind!” - A. Gould, Ohio

Read More Testimonials

A Real History of Success

IRS debt of $682,437, Attorney Silver and his team negotiated the Debt down to zero.

View More Results

You Can Fight The IRS And Win. We Can Help.

No matter where you are in the process, we can help you make the best of your situation. Call us toll free at 800-778-2741 for a free case evaluation.

Get A Free Consultation »

Privacy Policy | Business Development Solutions by FindLaw, a Thomson Reuters business.

Back To Top