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?