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Cancellation of debt -- Insolvent -- Form 982

From every definition I can find, I'm insolvement. I've been trying

to work things out and pay at least a portion of my debt to four credit card companies. I was able to make a settlement with one last year and got a 1099C form from them for $1000 (rounding it off for simplicity.)

I understand that if I had been solvent that this would qualify as income. But since I'm insolvent, as far as I understand, it's excluded from income.

On form 982 I've checked the:

1b "Discharge of indebtedness to the extent insolvent (not in a title 11 case)" and on line 2: "Total of discharged indebtedness excluded from gross income", I put in the $1000.

Either I'm dense or the instructions aren't that clear, but I'm assume this means I leave the $1000 off as reported income on the 1040 Form and that Form 982 is essentially an explanation of why I left it off. (I don't see any connection between the two forms.)

Or is that just an open invitation for an IRS audit?

Reply to
JohnS
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My condolences.

To the extent of your insolvency. It's not a binary condition.

You should have records and a worksheet to back up your insolvency calculation, although they do not need to be filed with your return. In a quick Internet search, I found one simple example (Legal Services of Northern Virginia):

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but more thorough worksheets should be available wherever EA's and CPA's work, in companies both large and small.

-Mark Bole

Reply to
Mark Bole

Thanks Mark.

Reply to
JohnS

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