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question iconI filed bankruptcy in 2013. One of the companies that was included on the Chpt 7 sent a 1099 to the IRS claiming that the debt was “forgiven”. The IRS sent me a letter telling me I owed taxes for this debt. I have forwarded the bankruptcy information to the IRS for review. What can be done in this situation?
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Debts that are discharged through bankruptcy proceedings are not subject to income tax based on cancellation of indebtedness. Therefore the 1099-C you received from your previous creditor is in error. Normally you would use IRS Form 982 to report the 1099-C and state that you have received a discharge and you will not be taking the amount as income. Since your return has already been filed you will need to provide the IRS with a copy of your creditor matrix and discharge from your chapter 7 bankruptcy. The IRS only has the 1099-C they do not have your bankruptcy information until you provide it to them. From your comment I see that you’ve already provided this information so you’re on the right track. If you feel that you need professional assistance in dealing with the IRS give us a call and we can assist you in resolving this issue. Thanks.

The foregoing information is general information only and should not be relied upon to take, or fail to take, legal action. No attorney-client relationship is formed by this information. __The only manner to obtain complete and adequate legal advice is to consult with an attorney.__
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Bill Henry
TaxApr 29, 2016
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