Are taxes discharged in bankruptcy taxable as forgiveness of debt? From Tax Debt Advisors, Inc.
Discharge IRS taxes in bankruptcy
No tax debt discharged in bankruptcy is considered cancellation of debt and will not be considered income to be reported on your tax return. However, creditors who elect to cancel their debt can cause it to be taxable by filing IRS Form 1099-C. Usually the full amount cancelled is taxable income unless you can prove that you were insolvent when the debt was cancelled.
If you decide to file a bankruptcy, I will prepare current documentation that will allow you to avoid paying taxes on forgiveness of debt, IF YOU ARE INSOLVENT.
Almost every client who files a bankruptcy is insolvent but to wait until the following year will make the process of proving insolvency more difficult.
Scott Allen, E.A. – Tax Debt Advisors, Inc
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