Tax Law (Questions About Taxes)/amendment and form 982

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Question
I filed my taxes on turbo tax this year.  I did include two 1099c for cancellation of credit card debt.  I mailed those in separate with a copy of my tax return and the form 982, as I am insolvent. IRS didn't accept it and sent me the bill for the cancellation of debt tax.  However, they said I can file an amendment and attach form 982 with it.

I saw a cpa yesterday and he didn't even know what form 982 is.  Upon reading the instructions, he assured me he can file it for me.

I just want to double check his work.  What is the proper way to do this?  Will I need to include the cancelled debt as income on my amendment 1040x?  Will my 1040x reflect that I do owe the tax?  

Thanks

Answer
James,

Thanks for your question.

If you included the 982 with your original return, I do not understand why the IRS did not accept it, unless the form was not completed properly.

First, if the CPA did not know what a Form 982 was, I would find another CPA. This is a very hot topic right now, and a tax preparer who is not familiar with a 982 is not up to date on the tax laws. Either that, or he has a very limited practice and this is out of his area of expertise.

Second, when you submit the Form 982 with your amended return, Part 1, line b should show the amount of cancelled debt you are excluding due to your insolvency.  You can exclude the cancelled debt from income up to the extent of your insolvency.  For example, if your assets total $100,000 and your debts are $125,000, you are insolvent by $25,000 and can exclude up to that amount from taxable cancellation of debt income. IRS Publication 4681 has an insolvency worksheet you can use to determine the extent of your insolvency.

If you submit an amended 1040X with a properly completed Form 982, you should not pay any tax on the COD income to the extent of your insolvency.

Hope this helps.

John Stancil, CPA

Tax Law (Questions About Taxes)

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John Stancil, CPA

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I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I am Professor Emeritus at Florida Southern College. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a CPA practice, specializing in tax, for over 35 years. I am a member of the National Association of Tax Professionals, The Florida Insititute of CPA's, The NCPE Fellowship. In addition I am a Certified Mentor for SCORE. Visit my website at www.mybaldcpa.com. I also offer seminars and consultations to churches and clergy on their tax issues at www.churchtaxsolutions.com Also visit my blog, www.thetaxdocspot.com. I am listed on Tax Connections at https://www.taxconnections.com/profile/John-Stancil/12258973 Prepare and file your own taxes at www.1040stancilcpa.com

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I hold a doctorate in Accounting, and am a CPA. My certifications of CIA, CFM, and CMA are inactive. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 37 years and have taught accounting and tax at the college level for over 35 years.

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FICPA, NATP, NCPE Fellowship, Lakeland Business Leaders

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The CPA Journal, Florida CPA Today, Green Consumer, Green Business, Global Sustainability as a Business Imperative, Palmetto Review, NATP TaxPro Quarterly, Mustang Journal of Finance and Accounting.

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DBA University of Memphis MBA University of Georgia BS in Accounting Mars Hill University

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