Forgiven Debt Can Create A Tax Liability – How to Avoid Problems Created by a 1099-c

suspiciousThere are a number of Americans attempting to work out a deal with their creditors right now. One thing many of them don’t realize, is that when the creditor makes the deal and forgives a portion of the debt, the portion forgiven, is reported to the IRS on a 1099-c.  The forgiven debt reported is than treated as income and may be taxable.

If some of your debt is forgiven as a result of this forgiven debt, you should receive a copy of the form 1099-c “cancellation of debt” from the creditor as well.   Unfortunately, the problem doesn’t not go away if the creditor fails to send the form to you and only sends it to the IRS.

You should report this forgiven debt on your income tax return and pay tax on it unless:

1.  You were insolvent

If you were insolvent i.e. your liabilities exceeded the fair market value of your assets at the time the debt was forgiven, the forgiven portion shouldn’t be counted as income.

2.  You filed for bankruptcy

If you filed for bankruptcy before the debt was forgiven, the 1099-c is issued to your bankruptcy estate and therefore not taxable to you.

3.  If you qualify under the Mortgage Forgiveness Act of 2007

If the forgiven debt was a result of a home foreclosure, the  Mortgage Forgiveness Act of 2007 may apply to you.

If you have received a 1099-c read the IRS form 982. Use this form to calculate your insolvency or attach a detailed letter. Work through IRS publication 4681 if you think you are involvent as well, as it contains instructions and a worksheet.

Better yet, get someone qualified to help you.

IRS Levy Stopping it

IRS Levy and how to stop it

The IRS routinely levies bank accounts and wages.  The wage levy is often as much as 75% of the paycheck and the bank must freeze and then send all of the money present in the bank account.

This is serious business.

These levies do not stop until the tax is paid or until it is modified or released.

The levy will occur if the tax has been assessed  (entered into the books as a debt), the taxpayer has been sent a notice of the debt and demand for payment, he or she doesn\’t pay, and the taxpayer has received a final notice of the IRS intent to levy and a right to a hearing at least 30 days before the levy actually occurs and to the taxpayer\’s last known address.

The collection can be appealed via the collection due process appeal process if one of the following are true:

  • No opportunity to dispute the underlying debt
  • Spousal defense
  • Alternate collection options
  • Statute of limitations expiration
  • The IRS assessed the debt and sent the levy notice while taxpayer in bankruptcy
  • The tax has been paid
  • Procedural assessment error exists

If the taxpayer misses the deadline to request a collection due process appeal hearing, the IRS will still release the levy if:

  • The debt is paid
  • The time has expired for collection of the debt
  • An alternate legal alternative is negotiated like an installment agreement, non collectible status and the taxpayer is compliant or has filed all returns.
  • The taxpayer is facing a hardship (may not require all returns to be filed immediately)
  • The taxpayer files a bankruptcy case invoking the Bankruptcy Code\’s automatic stay injunction

It is important that you read our tax blog about levy and garnishment issues and then call to discuss your situation. If you have outstanding tax debt and/or are being levied or garnished, we can help you stop it and deal with the debt.

Video: How To Prevent An IRS Levy by Tax Debt Lawyer In Mesa AZ

There is one thing that people often ask a Mesa tax lawyer, and that is how to prevent a levy or a collection
generally by the IRS when they know they owe, and they know the IRS is on the way.

IRS Levy Release

IRS Levy Release

The IRS is adept at taking money from paychecks via wage garnishment and bank accounts for taxes owed the Government via bank levy. An employer is required to collect the majority of a taxpayer’s check and forward it to the IRS if it has received a notice of wage garnishment. The amount taken from the paycheck is often 30% to 75% of the taxpayer’s wages. Banks, if properly notified, must send the entire amount in your bank account 21 days after receipt of the collection notice.

These garnishments and levies do not stop until the tax is paid or until it is modified or released.

The levy or garnishment will occur if the tax has been assessed (entered into the books as a debt), the taxpayer has been sent a notice of the debt and demand for payment, he or she doesn’t pay, and the taxpayer has received a final notice of the IRS intent to levy and a right to a hearing at least 30 days before the levy actually occurs and to the taxpayer’s last known address.

The collection can be appealed via the collection due process appeal process on a number of bases:

  • No opportunity to dispute the underlying debt
  • Spousal defense
  • Alternate collection options
  • Statute of limitations expiration
  • The IRS assessed the debt and sent the levy notice while taxpayer in bankruptcy
  • The tax has been paid
  • Procedural assessment error exists

If the taxpayer misses the deadline to request a collection due process appeal hearing the IRS will still release the levy if:

It is important that you read our tax blog about levy and garnishment issues and then call to discuss your situation. If you have outstanding tax debt and/or are being levied or garnished, an Arizona Tax Attorney can help you stop it and deal with the debt.

There is one thing that people often ask a Mesa tax lawyer, and that is how to prevent a levy or a collection
generally by the IRS when they know they owe, and they know the IRS is on the way.

IRS Penalty Abatement

IRS Penalty Abatement

The IRS has an extensive list of penalties they can assess against you. Over 140 potential penalties are on the books. Congress has created these penalties to encourage  compliance and fast payment.

These tax penalties are considered by some a national burden that actually impedes tax collection as they often cause the amount owing the IRS to become so unmanageable that the potential taxpayer will seek other ways to avoid paying it, including working under the table  and filing for bankruptcy.

Fortunately, the law does require the IRS to consider forgiving or abating  the penalties that have been assessed by if certain requirements can be met. Generally, the taxpayer must prove that a reasonable cause  or good reason exists that caused the action that was penalized in order for it to be abated.

What is or is not a good reason depends often on the unique and individual circumstances that existed when the taxpayer didn\’t pay the tax, file the return or did whatever other action that caused the penalty.

If the penalty is abated, the interest that has accrued with the penalty amount will be abated as well.

A good penalty abatement case typically requires that the taxpayer be thoroughly interviewed by an experienced Mesa tax attorney. The attorney will then compose a document based on the taxpayer\’s facts, proof and any legal precedent (past court cases) that would strengthen the taxpayer\’s position.

The IRS does not like to grant penalty abatement requests of course, even those that are well reasoned, and therefore an appeal of the initial decision is common.

If you have a serious penalty, you should strongly consider discussing your situation with experienced tax counsel. You can call our Mesa tax office and discuss your situation with us for free.

IRS Payment Plan Negotiation

The IRS is a giant debt collection machine that has access to a number of legal collection methods including but not limited to:

  • Levy/garnishment of wages and bank accounts
  • Interception of funds owed to the taxpayer
  • Seizure of assets
  • Recording of liens
  • Withholding of tax refund

Fortunately, the law provides the taxpayer certain tools to control the IRS\’ collection activity. The most common tool is the installment agreement.

taxbillThe taxpayer can propose a payment plan in lieu of collection activity. In order to do so, the taxpayer must fulfill a number of requirements including the filing all required returns, and providing proof of income, budget, and assets.

Many installment payment arrangements result in a partial payment of the total tax owed before the time to collect the debt legally allotted to the IRS has expired. This solution is often called a partial pay  installment agreement. Many of our clients qualify for a form of partial pay called non collectible  status as well. This means that the IRS will agree to simply stop the collection process until the taxpayer\’s situation improves.

If you are facing IRS collection activity, the Gilbert tax attorneys at Anderson Tax Law can help you determine the best payment plan possible under the law, and can help you plan and negotiate a full pay payment plan, a partial pay payment plan or non collectible status with the IRS. Every dollar reduction in the amount of the payment plan could result in thousands of dollars saved over the life of the plan. Experienced counsel is necessary to get the best overall result.

If you have serious tax debt, call to discuss your situation with us for free by phone.