It’s tax time!  What do you do if you receive a 1099 C (Cancellation of Debt) from a creditor after you file bankruptcy.

When a creditor forgives (charges off) a debt, the IRS recognizes this as a “taxable event”   That means you must pay taxes on that amount, as if you received the forgiven debt as income.  With the mortgage foreclosure problems many have been facing, this could mean a tremendous increase in the amount of taxes that are due.  For example, I received a call today from a client who received a 1099 C in the amount of $40,000.00.  This increase in income could translate into thousands of dollars of additional income taxes.  Not a good alternative.

Take heart.  If you filed for protection under the bankruptcy code and received a discharge, the IRS has a process to exclude this type of income – so you don’t have to pay taxes on that forgiven debt.  You need to file Form 982 with your federal income tax return for a year a discharge of indebtedness is excluded from your income.  The purpose of Form 982:

“Generally, the amount by which you benefit from the discharge of indebtedness is included in your gross income. However, under certain circumstances described in section 108, you can exclude the amount of discharged indebtedness from your gross income. You must file Form 982 to report the exclusion and the reduction of certain tax attributes either dollar for dollar or 331/3cents per dollar.”

You must complete Form 982 and attach that form, along with the 1099 C , to your tax return.  Don’t just ignore this matter.  Often people receive these documents and simply discard them because they received a Discharge.  But the IRS is funny that way.  The IRS expects you to document and file all matters involving your income.

So, if you received a discharge  of your debt in  bankruptcy and you receive a 1099 C from a creditor, you should file the 1099 C along with IRS Form 982 along with your tax return, and protect yourself from additional taxes.

Avvo.com is a web site people can go to “Get free advice from  top-rated lawyers, doctors and dentists.”  I found Avvo about 30 days ago.  I know this, because Avvo has a pretty go0d analytic function that tracks my use of the site.  I was visiting a colleague’s web site and noticed an Avvo Rating Badge on the bottom of her page.  I clicked through for the first time, and have visited Avvo everyday since.  I found the Avvo Answers to legal questions posted on Avvo to be thoughtful and helpful.  I wanted to participate to the Avvo Answers.

Now I act as a contributor on Avvo; that means I answer questions presented by “Askers” from around the country.  I field questions from the Tax, Chapter 7, Chapter 13 and Foreclosure practice areas (mostly).  In the first 30 days I have answered 409 questions, and risen to “Contributor Level 14.”  It’s been interesting.

Some years ago, I answered legal questions through email I received from a bankruptcy site. I answered thousands of questions.   That turned out to be good preparation for learning how to answer complex legal questions in a clear, understandable way.  Avvo has given me the forum to put this ability to good use, and help lots of people too!

From both of these experiences, I noticed that many of the same questions rise again and again.  For example, on the Avvo Tax Practice Area the most common questions revolve around which party gets the child tax deduction after divorce.  For the Chapter 7 Bankruptcy Practice Area, the most common questions ask about Schedule C Exemptions.

Over the next several months, I will present some of my Avvo Answers to these, and other, Avvo Questions.  In addition, I will convert these blog posts to Legal Guides, published on Avvo.  My goal is to make answers to common questons available to those who need these answers, when they need the answers.

Thanks to several clients who posted a client review on the web site www.avvo.com.  My buttons are bursting with pride.  Thank you!!

Working with Steven and Staff

Posted by: Lenny, a Real Estate client, 1 day ago.

Overall rating		Excellent
Trustworthy		Excellent
Responsive		Excellent
Knowledgeable		Excellent
Kept me informed		Excellent

• I recommend Steven Leahy.
• I used Steven 6-12 months ago.
• Steven handled my Real Estate matter.
• I have previously worked with 6-10 lawyers.

Satisfaction Guaranteed

Posted by: Ralph, a Chapter 7 client, 1 day ago.

Overall rating		Excellent
Trustworthy		Excellent
Responsive		Excellent
Knowledgeable		Excellent
Kept me informed		Excellent

• I recommend Steven Leahy.
• I used Steven 1-3 years ago.
• Steven handled my Bankruptcy / Chapter 7 matter.
• I have previously worked with 1-2 lawyers.

Client Review:

Mr. Leahy’s credentials surely speak for themselves concerning his expertise but my experience with the way Mr. Leahy handled my bankruptcy case reflected more than just a knowledgeable attorney. Mr. Leahy seemed to me to be genuinely passionate about his field and how he could assist those in need of his services. His very personal approach, attention to details, friendliness and quality of time he offers are honestly just a few reasons why i would recommend him and trust him again to handle any future legal needs.

Lamar Odom, of the Dallas Mavericks recently sued the IRS after he received a tax bill for $87,000.00. The IRS denied him a tax deduction of $190,000 in personal fitness fees and NBA-imposed fines from his 2007 tax return. Mr. Odom found himself a good tax attorney to fight the IRS, Robert T. Leonard.

The IRS settled rather than go to court. The settlement called for about 10% of the IRS claim, or $7,827 plus interest. Sometimes it pays to fight the IRS with the aid of a good tax attorney. Read the story here.