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Old 09-30-2012, 08:07 PM
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1099-C for closed business

I received a 1099-c for a credit card that was used for my business. The business was closed in 2008. Because it was personally guaranteed by myself I received the 1099. I am not sure if I should file the 1099 under my personal income taxes or if I have to do a form for the business (although it is closed). I should qualify for the insolvency exemption, however I'm just not sure if it should be based on my personal or business insolvency. Thank you in advance for you help!



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Old 10-01-2012, 02:57 AM
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“I received a 1099-c for a credit card that was used for my business. The business was closed in 2008. Because it was personally guaranteed by myself I received the 1099. I am not sure if I should file the 1099 under my personal income taxes or if I have to do a form for the business (although it is closed). I should qualify for the insolvency exemption, however I'm just not sure if it should be based on my personal or business insolvency.”------>In general, as you can see, if a 1099C is issued, it is taxable to the debtor and needs to be reported on their tax return for that year as income. A 1099C does not have to be reported as income if the taxpayer is insolvent. But that is the IRS's definition of insolvent. You could be asked to prove that at the time that debt was forgiven that, even by liquidating assets, you could not have paid all your debts. You indicate that the credit card was related to a business credit card. If this was your business and you were the person responsible for the debt it is reportable on that business tax return.For example, if you report your income and expenses from the business on a Sch C, Form 1040 the cancelled debt is listed as income on the Sch C and carries over to your Form 1040.You may be able to exclude some or all of this debt if you were insolvent at the time the debt was forgiven (cancelled).Just because you don’t need to include the 1099-C as taxable income, does not mean that you don’t have to report it to the IRS. If a 1099-C you receive qualifies to be excluded from your taxable income, you must be sure to at least report it to the IRS by attaching Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, to Form 1040.If the 1099-C is for 2008 and you did not report it as part of your 2008 federal income tax return you will need to amend you tax return using form 1040X. Since your taxable income may go up as a result of this, your refund will be reduced. Depending on the amount of debt forgiven, the your income level, deductions and other factors, you could face a sizable tax bill.


Last edited by Wnhough : 10-01-2012 at 03:34 AM.


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Old 10-01-2012, 08:29 AM
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Originally Posted by Wnhough View Post
“I received a 1099-c for a credit card that was used for my business. The business was closed in 2008. Because it was personally guaranteed by myself I received the 1099. I am not sure if I should file the 1099 under my personal income taxes or if I have to do a form for the business (although it is closed). I should qualify for the insolvency exemption, however I'm just not sure if it should be based on my personal or business insolvency.”------>In general, as you can see, if a 1099C is issued, it is taxable to the debtor and needs to be reported on their tax return for that year as income. A 1099C does not have to be reported as income if the taxpayer is insolvent. But that is the IRS's definition of insolvent. You could be asked to prove that at the time that debt was forgiven that, even by liquidating assets, you could not have paid all your debts. You indicate that the credit card was related to a business credit card. If this was your business and you were the person responsible for the debt it is reportable on that business tax return.For example, if you report your income and expenses from the business on a Sch C, Form 1040 the cancelled debt is listed as income on the Sch C and carries over to your Form 1040.You may be able to exclude some or all of this debt if you were insolvent at the time the debt was forgiven (cancelled).Just because you don’t need to include the 1099-C as taxable income, does not mean that you don’t have to report it to the IRS. If a 1099-C you receive qualifies to be excluded from your taxable income, you must be sure to at least report it to the IRS by attaching Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, to Form 1040.If the 1099-C is for 2008 and you did not report it as part of your 2008 federal income tax return you will need to amend you tax return using form 1040X. Since your taxable income may go up as a result of this, your refund will be reduced. Depending on the amount of debt forgiven, the your income level, deductions and other factors, you could face a sizable tax bill.
Thanks for the quick response! The business was set up as an S-Corp and was closed in 2008. The 1099-C is for the year 2011. It was stated on the 1099 that I was personally liable and it is using my SSN on the form instead of the business. Am I understanding correctly that I am to file an 1120-S under the business name and then carry it over to my 1040 along with the Form 982?



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Old 10-01-2012, 01:12 PM
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“The business was set up as an S-Corp and was closed in 2008. The 1099-C is for the year 2011. It was stated on the 1099 that I was personally liable and it is using my SSN on the form instead of the business. Am I understanding correctly that I am to file an 1120-S under the business name and then carry it over to my 1040 along with the Form 982?”------->It depends; in general, you need to write the amount of debt cancelled on Form 1120S Line 5 "Other Income (Loss) as long as it is TAXABLE (book-tax difference on Sch M1 on 1120S if excluded due to insolvency, 982 and attribute reduction as appropriate; the cancellation of debt would be a passive income, and reported as such on line 21 of form 1040) And add together Lines 1 to 5 and place the result on Line 6 and the income from the debt cancellation will flow through to the shareholders on the K-1and you need to fill out Form 1120S/1040 as you would normally file your taxes. It could be that IRS is treating COD income the same way they would interest income, dividends, and capital gains which originate from a K-1 on 1120S. These income items are certainly passive to the taxpayer but must be included as income. The lender will send a copy of the 1099-C to both you and the IRS. The IRS will adjust your tax return when they receive the 1099-C. So, the 1099-C will increase your tax liability and may cause you to owe additional tax. It is therefore in your best interest to file an amended tax return to add the 1099-C to your income. HOWEVER, section 108 provides that the exclusion of COD income and the reduction of tax attributes are applied at the corporate level. The company is insolvent. You also have the issue of needing to verify insolvency at the corporate level based on the assets and liabilities of the corporation. It is excluded at the S corp level and is properly reported on form 982. You need to look at Form 982, to the extent the S Corp was Illiquid you may not need to recognize income for the debt relief, if the debt relief is non-taxable income, you may have to reduce certain tax attributes (credit carryovers, losses, basis of depreciable assets and inventory, etc). Form 982 is a tax form for individuals, NOT businesses, to complete with their federal income tax returns. Form 982 does not have to be completed by all taxpayers because it is for "Reductions of Tax Attributes Due to Discharge of Indebtedness" and only applies to taxpayers who have had a debt discharged. In most instances, discharged debt is added to your gross income, but you are allowed to exclude that discharged debt under certain circumstances and you use Form 982 to do that.You need to complete "Part I" of Form 982. This section requests general information. You will need to select the reason that the discharged debt is excluded from your gross income. You will also need to list the total amount of the discharged debt to be excluded. Attach your "Reduction of Tax Attributes" statement. You will to attach a statement to Form 982 that describes what actions resulted in the discharge that is reducing your tax liability.ALSO you should complete "Part II" of Form 982. Part II deals with the "Reduction of Tax Attributes" and asks questions about the circumstances and amounts to be excluded from gross income. Complete "Part III" of Form 982. Part III is the "consent to adjustment to basis" section of the form. By completing this section, you agree to the general rule for adjustments to the basis of property. You simply list the total amount again, the tax year and the state to complete this section. You need to submit Form 982 with your federal taxes with your 1040.No Form 982 can be attached to an 1120-S.


Last edited by Wnhough : 10-01-2012 at 01:29 PM.


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