Received a 1099-C!  What do I do?

If you have had an unsecured debt settled for more than $600 and less than the full balance, you may get a 1099-C around tax time.

Unfortunately, many tax preparers and/or accountants do not understand how to take care of this so you don't have to pay much or nothing extra in taxes!


The IRS wants to get as much tax from us as possible.  Although we should pay our fair share of tax, many people pay much more than they should by not knowing or understanding the tax code on a 1099-C!


I am not a tax professional or attorney, so I am not giving tax or legal advice. 

You should always consult a qualified tax authority.

Don't be surprised if they don't really understand how to deal with a 1099-C!


You had a Visa Credit Card with a balance of $5,000.

For whatever reason, you just could not keep up with the minimum payments due and the account became delinquent.

After receiving numerous calls, emails and letters, the account was transferred or sold to a "debt buyer".

A debt buyer (company who buys huge blocks of debt found in the records of the Credit Bureaus) can attempt to collect a debt just like the original creditor or the average debt collector.

Anyway, you are able to settle the account for $2,000, for a difference of $3,000.

Actual Settlements See what we have  done for our clients! Click here!

The IRS says that this $3,000 was "FORGIVEN" and should be added back into your total gross income for that year.

Most people (and many tax professionals) mistakenly think that you have to pay $3,000 of additional tax! 


The 1099-C actually says (fine print at the bottom) that you may be EXEMPT if at the time of this "FORGIVENESS" you were INSOLVENT.

In IRS terms, INSOLVENT means that at the time of this settlement/forgiveness your LIABILITIES were greater than your ASSETS, then you DO NOT have to add this FORGIVEN income back in to be taxed!

How do you prove to the IRS that your were INSOLVENT at the time of the settlement/forgiveness?

The process is actually very simple (although again, many tax professionals do not understand it!).

You will need to provide some documentation and an IRS Form 982.

Here is a link that will provide you with the necessary documentation, IRS Form 982 and a simple example.


At Debt Relief NW, LLC, we have been helping people deal with having too much debt for a little over 20 years now.

If you have questions, let us know:

Personalized  Program Comparison Click here!



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Tags: debt collection, debt relief in Portland Oregon, 1099-C, IRS Form 982

Received a 1099-C...Now What?

Around tax time, many people receive a 1099-C form and usually do not know what to do about it.

Here is some very important information on not only why you received it, but what to do about it:




You need to understand:

  • Why you received the 1099-C.
  • Why you cannot ignore.
  • If you will have have to pay more tax
  • How to file with your tax return.



Anytime a creditor accepts less than the full balance due and the "forgiven" amount (the difference between the actual balance and the amount you paid) is greater than $600, the creditor most likely will report it to the IRS.

I said "most likely" because not all creditors will report a settlement/forgiveness.

If they do, then you will receive an IRS Form 1099-C that shows the creditor, the amount given and some general instructions on what to do.

Of course, typically with the IRS, the form is somewhat vague and not very clear as to what you need to do.

So, let's walk through this....


If you cannot make the required minimum payments on your credit cards or other unsecured debts, after a certain amount of time (usually 3-4 months) the creditor may sell or transfer the debt to a debt collection agency.

The original creditor will most likely write the balance off as a loss (to offset their tax reporting) and usually sell the debt at "pennies on the dollar".

Let's say that the debt collector/debt buyer bought your Visa Card debt of $5,000 for $500...(yep, the get these very, very cheaply!)

Now, you start getting calls and letters from the debt collector saying you owe the $5,000 to them (even thought they only paid $500).  Starting to get the point?

Oh, by-the-way, once the account has been sold or transferred from the original creditor, you can put a stop to the phone calls:

STOP Collection Calls Free Sample Letter

But, even though you stop the calls, the amount you owe still remains!

Depending on your specific circumstances you may have gone through or are going through, the debt collector/buyer may be willing to accept a SETTLEMENT.

A settlement is an agreement to accept less than the full amount to satisfy the debt, usually saving you 40%-60%.

The difference between the balance owed and the amount accepted as a settlement is called a "FORGIVEN" amount by the IRS, and as I said before, you most likely will received a 1099-C form because of it.




We get calls from clients all the time who received the 1099-C, ignored it, filed their income taxes as usual, and then, a few months later, start getting letters from the IRS saying they own more money plus penalties and interest!

And, even though you can file an amended return in hopes of getting this taken care of, it is a lengthy, time consuming process now.

The time to deal with the 1099-C is now....not later!


Just because you receive a 1099-C doesn't necessarily mean that you will have to pay more tax.


Let's say that the Visa Card that had a balance of $5,000 and was sold to XYZ Collectors, was ultimately settled for $2,000.

Good deal!, you just saved $3,000!

Well, that's true, but, the IRS looks at it as if you had received $5,000 of goods and services, but only paid $2,000, so you had an additional $3,000 added back to your gross income for that year.

Now your total adjusted net income (the amount you will have to pay tax on after all deductions and credits are deducted from your gross income) is increased by $3,000.

If the TAX RATE (the percentage of the adjusted net income) was 20%, then you would owe an additional $3,000 x 20% or $600 more tax! (not including penalties and interest!).

But, if you had read the fine print of the 1099-C you received, it said that (paraphrasing here) that...

 you may be EXEMPT if you were INSOLVENT at the time of the FORGIVENESS.


What does "INSOLVENT" mean and how do you show or prove to the IRS that you were? 


How do you file with the IRS?


You must provide the IRS with a little information and the proper forms (specifically IRS Form 982).

Basically, you are going to show that at the time of forgiveness (the settlement) you had more LIABILITIES (debt owed) than your ASSETS (all equity, bank accounts, etc.)

If this is the case, then you DO NOT have to include the FORGIVEN amount as additional income and therefore, and will not have to pay any additional tax!

But, you have to provide/include the proper documentation and form with your tax return.


Don't be surprised if your tax-preparer doesn't know what to do with the 1099-C and don't "just pay the extra tax" as a result!!!


Just click below, follow the instructions:




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Tags: secured credit card, 1099-C, IRS, tax on forgiveness of debt, settlement

How to File IRS Form 982 After Receiving a 1099C

When a debt is settled (IRS says, "forgiven") for more than $600, you may receive a form 1099C that seems to say that you are going to have to pay more tax!  Here's what you need to do to have the "forgiveness" excluded as additional income:


(Let me start out by stating that I am not an accountant or attorney.  I have been helping people deal with creditors, debt collectors, and attorneys for the creditors for many years and have tried to provide assistance to them or their tax preparers in how to deal with a 1099-C form.  So, please consult yours!)

Now, in this article/blog, I'm talking about dealing with a 1099-C that you may (or may not) receive after an unsecured debt such as credit cards, personal bank loans, medical bills, etc. has been settled for less than the balance.

By the way, don't be surprised that your tax preparer or accountant is not quite sure what to do with the 1099-C!  Or, be careful if they just say that you have to include the settled/forgiven amount as additional taxable income without seeing if it can be excluded!!!!

ALSO, DO NOT IGNORE THE 1099-C, even if you receive it AFTER you have filed!

 If this happens, you may have to file an amended form.  You accountant or tax preparer will help.

Ok, so you have received the 1099 C.... NOW WHAT?

To help you, here's an actual copy of a 1099C one of my client's received for a debt we helped settled in 2015.  (The 2016 1099C's are not out yet, but will be the same.)

Click on the form below and print a copy so you can follow:

1099C Form 2015

It shows...

  • The name of the creditor... Capital One
  • Client's personal information (I've blacked out for privacy of course)
  • Date of the settlement... 1/3/15
  • Amount of the canceled debt (amount forgiven)    $1,463.68
  • Debt Description... Credit Cards and Loans
  • 1099-C Instructions for Debtor

The actual balance at the time of settlement was $ 3,440 and the total settlement was for $1,500.  Even though this was a reduction of $1,940, the creditor has excluded the added interest and fees in reporting the settlement to the IRS.

Look carefully at the bottom of the form and you will see,

"However, according to IRS Pub. 4681, you may not have to include all of the canceled debt in your income.  There are exceptions and exclusions, such as bankruptcy and insolvency."

Do you see the word, "INSOLVENCY"?  This is the key to the whole matter.

It means that if at the time the settlement was completed, if your liabilites (all outstanding debts including the one that was settled) were greater than all of your assets (equity in your home, car, cash, bank accounts, etc.), then, according to the IRS, you were INSOLVENT.

So how do you show/prove to the IRS that you were insolvent at the time of the settlement?

You are going to file IRS Form 982 along with your tax return. 

But first, you are going to have to do a little "homework"... relax, it's easy...

Although it is not necessary, I advise my clients to write out a BRIEF, LEGIBLE explanation of their situation at the time of the settlement.  Again, you don't have to use word processing, but make sure you write very clearly.  Something like:

John Smith  SS # 123-45-6789  234 Main St.  Big City, OR 97033

I lost my job in August of 2014 and did not find employment until a year later.  My wife was also very ill at that time. 

We used credit cards to try and make ends meet, but ultimately were unable to keep up with the payments.  Rather than file for bankruptcy, we tried to negotiate with our creditors for a reduction of the balance.

As you can see from the Assets vs. Liabilities worksheet I've attached, we were in real financial trouble and/or insolvent.

Next, complete a brief worksheet listing your Assets vs. your Liabilities:


Assets:                                                            Liabilities:

FMV of home         $ 225,000                          Mortgage   $190,000   2nd   $20,000

FMV of car             $    5,000                           Student loans         $27,000

Personal Items       $    5,000                           Medical Bills           $  4,000

                                                                     Credit Cards           $ 31,000

Total Assets:        $ 235,000                          Total Liabilities:       $  272,000

                                  Net Worth:     negative  -$37,000

Now you are going to fill out IRS Form 982 (really, really simple!!!)

For credit card and other unsecured debts, you only have to deal with Part I.

  • Check the box on 1,a
  • Fill in the amount of forgiveness from 1099C on line 2  ( 1463.68 )

That's it!  Nothing to it!


  • The 1099-C
  • Your brief explanation of financial hardship
  • Your Assets vs. Liabilities worksheet showing Insolvency
  • Completed IRS form 982


Attach/include, all of the above with your tax return.

If you need more help, click below:



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Tags: debt settlement, Bankruptcy, credit card, 1099-C, IRS Form 982, IRS Form 4681

What is a 1099-C and What to do About it!

If a creditor settled or wrote off a debt for you in 2015, you may get a 1099-C.  Here's what you can do to avoid paying any additional tax...

Debt settlement is an option that we use and you can use to help avoid bankruptcy and become free from the burden of too much debt.

Basically, is a debt settlement, the creditor or in most cases a debt collector who has purchased the debt agrees to accept an amount far less than the actual current balance.


If the "forgiven" amount is greater than $600, then the creditor or debt collector may report it to the IRS.  They don't do it in every case, but you need to be aware of what to do about it if it happens to you!

There a couple of different looking 1099-C forms.  Here is an actual form one of our clients received and I'll walk you through the process of how to file the proper forms to exempt the settlement/forgiveness when you file your taxes.

Here is an actual 1099-C one of our clients received.  Click to view:


The actual balance at the time of the settlement was $3,041 and the settlement was for $788, saving this client $2,253!

The 1099-C reflected this and you can see that in box 2, the amount is being reported as "Amount of debt canceled".

If this client did not file the proper forms with her 2014 taxes, she would have had an additional $2,253 added in as additional income and based on her 30% tax bracket (average net federal), she would have to pay an additional $676 of tax!

Here's what she did:

According to IRS publication 4681, she needed to prove that "at the time of forgiveness (settlement), she was INSOLVENT.

All she (and you) needed to do was to list all of her assets vs. liabilities to see where she stood.

This doesn't have to be a "fancy" spreadsheet or anything, but just write down (again, at the time of the settlement/forgiveness) your assets/equity on one side and your liabilities/debts on the other.

Something like this:

                      Assets:                                           Liabilities:                                  

         Home value:          $  0 (she rents)          Credit Cards total (including this debt):    $15,000

         Auto value today:   $ 5,000                      Auto loan:           $1,000                            

         Savings:                 $    250                      Student loan:      $ 10,000

         Personal assets:    $ 2,500                      Medical bills:       $     500

         Total Assets:          $ 7,750                      Total liabilities:     $ 26,500

It is clear that her Liabilities were greater than her Assets, therefore the amount forgiven should be exempt from taxation. 


She downloaded IRS Form 982 and followed the simple instructions we gave her:

In Part 1, on line 1a, she marked the box with an "X".

In the same Part 1, on line 2, she wrote in the amount that was forgiven, $ 2,253.

That's all on the Form 982. 


She could have just included that with her tax return and in most cases, that would have been sufficient.  But, I recommend writing a brief, legible explanation of what caused your situation, etc.  Again....very brief neatly written (doesn't have to be typed).

Something like this:

In 2014, I was laid off from my job of 15 years!  As I looked for work, I had to rely on credit to get by.  When it got to the point that I just couldn't keep up with the payments, I considered bankruptcy. 

Fortunately, the bankruptcy attorney I went to see referred me to a Debt Management Company who helped me pay off and/or settle my debts.



You have:

  • Asset vs. Liabilities worksheet
  • IRS Form 982 completed (yep, just two boxes)
  • Brief, legible handwritten explanation of your circumstances



  • Make a copy of these along with your tax return for your files.
  • Mail your tax return along with the documents above.
  • That's it!


If you would like more information or need any help, click below:



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Tags: debt collector, credit card, 1099-C, debts, additional taxes

Tax Time, Debt Settlement, 1099-C

If you had a debt settled or forgiven last year for more than $600, most likely you will receive a 1099-C.  Do you have to pay more taxes?  Here's what you need to know:


If a creditor is willing to accept less than the full balance due (called debt settlement), the IRS calls this a "forgiveness" of the debt. If this amount is more than $600, the creditor or debt collector who owns the debt must report the "forgiveness" to the IRS.

Then, the IRS will send you a 1099-C Form.  This form states that a certain amount was forgiven by the creditor and that you must include the forgiven amount as "other income" when you file your taxes.

Fortunately, you may be able to EXCLUDE this amount of forgiveness if you meet a simple test.  According to IRS Publication 4681, you may be deemed as INSOLVENT and do not have to add the forgiven debt as additional taxable income.  At the bottom of page 5, under the paragraph "INSOLVENCY", it states:

"Do not include a canceled debt in income to the extent that you were insolvent immediately before the cancellation.  You were insolvent immediately before the cancellation to the extent that the total of all your liabilities was more than the FMV(Fair Market Value) of all of your assets immediately before the cancellation.  For the purpose of determining insolvency, assets include the value of everything you own..."

So here is what you do:

Take a sheet of paper and on one side, list all of your ASSETS:

  • FMV of your home (realistic price you should get if you sold your home)
  • Savings accounts
  • Net FMV of any automobiles
  • Net FMV of anything of real value (collectibles, Quad runners, boats, etc.)

One the other side of the paper, list all of your LIABILITIES:

  • First mortgage balance
  • Any 2nd mortgage balance
  • Total amount of all credit card debt (including the balance of this forgiven debt!)
  • All medical bill debt
  • All Store Card debt (Kohls, Sears, Home Depot, etc.)
  • Any State or Federal Taxes you are paying back
  • Student Loans
  • Personal Loans
  • Auto Loans

Add up all of your ASSETS and subtract all of you LIABILITIES.  For example:

                                     Total Assets          $236,000

                                     Total Liabilities      ($278,000)

                                     Net Worth            - $ 42,000

At the time of the "forgiveness" or settlement, you were INSOLVENT and therefore, you DO NOT have to include that amount as additional or "other income"!

                                 OK....Now What????

When you prepare (or have someone else prepare) your taxes, you will need to include

  • IRS Form 982
  •  A copy of the 1099-C
  • A copy of your Assets vs. Liabilities worksheet (can be on yellow pad paper!).

I've been helping people deal with debt issues for over 12 years and have only had a couple of people have to include any "forgiven" amount as additional income! 

Don't be surprised if your CPA, tax preparer (especially the H&R Block types) or accountant does not really understand how to deal with a 1099-C. 

I've assisted dozens over the years and have put together a 1099-C instruction packet that you will find very helpful!



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Tags: 1099-C

What to do if you receive a 1099-C after a Settlement?

If you have had a debt settled for less than the total balance, you may receive a 1099-C.  You may or may not have to pay any additional tax.

Get out of debtWhen you settle a debt for less than the full balance due, and this is for $600 or more, the creditor or debt collector may report this to the Internal Revenue Service.  I say "may report" because they don't always report a settled or "forgiven" debt. 

Over the past decade that we have been helping people get out of debt, it seems that in the last year or so, more and more creditors and/or debt collectors are reporting settled or forgiven debt.

I have to start out by stating that I am not a CPA or licensed professional tax consultant, so any advice here should only be used to help point you in the right direction.  If you do receive a 1099-C, please seek the help of a professional tax consultant!

So what should you do if you receive a 1099-C?

                             DON'T IGNORE IT!!!!

Let's say that you had a Credit Card that had a balance of $10,000 and because of circumstances beyond your control, you just couldn't make the minimum payments.

Most likely, this account was sent to a collection agency after the original creditor made numerous attempts, such as annoying and often harassing phone calls and many collection letters.

STOP Collection Calls Free Sample Letter

The debt collector may have sent you an offer to settle for less than the full amount due or perhaps you or a Debt Settlement Company were able to negotiate a good settlement.

Using our $10,000 example, let's say that the settlement was for $4,000.  The debt collector was willing to "forgive" (in IRS lingo) $6,000.  The debt collector reports this to the IRS in order to write that amount off as a loss and you are sent an IRS form 1099-C.

At first glance, it may look like you owe $6,000 of additional tax, but this is not so!

You will need to file the proper forms with your tax return to have the settled or forgiven amount EXCLUDED from being added back in as additional taxable income.

As usual, the IRS seems to have complicated the process, but in reality, it is not that difficult to file properly.

The basic and most important question that you must answer and prove to the IRS is:

"At the time of the settlement or forgiveness of the debt, were you insolvent?"

What is "insolvent"?

If, AT THE TIME OF THE SETTLEMENT, you had more debt than you had in assets, then you were insolvent. (Sounds terrible, but that's just their terminology.)

So, how do you find out or prove if you were insolvent or not?

It is really not difficult.  Take a piece of paper (or use your computer if you want) and one side list all of your assets, such as:


  • Net equity of your home (Current value less amount you owe = net equity)
  • Cash or money in the bank
  • Net DEPRECIATED value of things such as furniture, appliances, tools, etc.  remember, even though you paid $2,000 for that refrigerator a few years ago, today it probably would sell for only $200-$300!
  • Net value of your autos, boats, campers, etc.  Same thing, NET, DEPRECIATED VALUE!

Total all of these up.

On the other side of your sheet, list all of your DEBTS OR LIABILITIES, such as:

Since you've used the NET VALUE (Depreciated Value less Balance still due) on the ASSET SIDE, were probably talking about:

  • Credit cards
  • Store cards
  • Student loans
  • Medical Bills
  • Personal loans
  • Possibly Home Equity loan or 2nd you forgot to list before!

Add all of these up.

Subtract the total of all of your LIABILITIES (DEBTS) from your NET ASSETS. Which is greater?  If your Liabilities are greater than your Net Assets, you were insolvent at the time of settlement and therefore, the amount forgiven WILL NOT be included as taxable income.

The next part seems a little difficult, but it's not.

You are going to complete:

  • IRS Form 982
  • A copy of your ASSETS VS. LIABILITIES worksheet
  • A copy of the 1099-C

You are going include these along with your normal tax return.  By the way, don't be surprised if your tax preparer seems a little confused as to how to handle a 1099-C.  I've had clients pay tax that they didn't need to because the tax preparer didn't file the proper forms.

We have prepared a FREE 1099-C PACKET that you can download and use. 

It includes:

  • Instructions
  • Examples
  • IRS Forms

Get yours by clicking on the button below:


What happens if your Assets were greater than your Liabilities?

You are going to need the help of a qualified, tax consultant or preparer.  You still should be able to exclude a large percentage of the forgiven debt, but there may be other ramifications, so I advise you to get help.

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Tags: credit card debt, debt settlement, 1099-C, IRS Form 982, credit card debt relief oregon, credit card debt help portland or

How to Avoid Additional Tax After Receiving a 1099-C

If you had a debt settled or "forgiven" in IRS lingo, and it was for more that $600, you most likely will receive a 1099-C.  But, you may not be required to pay additional tax on the forgiven amount, but YOU MUST FILE THE CORRECT FORMS AND DOCUMENTATION

We have prepared a simple, easy-to-use instruction packet for you. 

Get yours now:


Receiving an IRS Form 1099-C is a little scary, but if you look closely at the form, you will see something like this:

" not include canceled debts in your income to the extent you were insolvent immediately before the cancellation of the debt.  If you exclude a canceled debt from your income, file Form 982."

OK, now what?

First, at the time of settlement (most likely last year), were you INSOLVENT?

According to the IRS, "insolvent" means that your debts (all liabilities, not just this settled debt) were greater than your assets (net worth).

You'll need a simple, Basic Financial Worksheet:

Budget Worksheet FREE Download here!


You will list all of your assets, net value of your home, autos, etc.  Most people who have have debts settled would have had little if any equity in their home and/or auto. 

You most likely have little or no savings, hence the financial hardship that helped lead to using DEBT SETTLEMENT to eliminate your debts!

Once you have completed the Financial Worksheet, if your LIABILITES were greater than your ASSETS at the time of the settlement, then you were 'INSOLVENT".


We have included Form 982 with the FREE 1099-C PACKET.  If you haven't requested the FREE DOWNLOAD, click on the button above.

Follow the instructions to compete the Form 982. It's so simple.

It is a good idea to include a short explanation of your financial situation.

Just a brief note (can be handwritten, but make it legible).

So now you should have completed:

  • Financial Worksheet showing your were insolvent at the time of the debt forgiveness
  • Form 982
  • Brief note of your financial circumstances at the time

Make a copy for your records and then send all of the above along with your tax return to the  IRS.  You should send via Priority Mail so that you will have proof that the IRS received it, but don't ask for a signature, as this may delay the process.  You can track delivery online.

Don't be surprised if your accountant and/or tax preparer is not aware or does not know how to complete the Form 982.  Just download and print the FREE 1099-C Packet for them.

If you have alreadly filed your tax return and before you received the 1099-C, you will need to file an amended form along with the 982 and other documents.  You should probably seek the help of a qualified tax specialist for this.

Hope this helps! 

Tags: insolvent, form 982, 1099-C, IRS Form 982, IRS, additional taxes

What To Do If You Receive a 1099-C

what to do if you receive a 1099-C

Have you had a debt settled for less than you owe?  If so, chances are pretty good that you also received a 1099-C for the amount of the "forgiven" debt amount.  WHAT?  How can that be possible? 

Unfortunately, if you settle your debts, the forgiven amount is considered taxable income.  However, you don't necessarily have to included it as taxable income.  Read on to hear Bob's story and how he was able to avoid paying taxes on his forgiven debt.

How to avoid paying taxes if you receive a 1099-C for FORGIVEN DEBT

Bob lost his job and started using several credit cards to make ends meet. He was paying for groceries, gas, and even had to take a cash advance once in a while to survive.Bob had every intention of paying off the cards, but due to our country's severe economic downturn, he could not find a job.

After about a year or so, he had added another $10,000 to his cards, making the total of all his credit cards to be about $22,000!The minimum payments on all of them totaled a little over $500 per month and he just couldn't meet his obligation.  After 3-4 months of non payment, most of his cards went into collections, debt collectors started

Bob had heard about DEBT SETTLEMENT and DEBT MANAGEMENT, but didn't know if he qualified.

After a FREE COUNSULING SESSION, it was clear that he could not qualify for the Debt Management Program and therefore chose to enroll in the Debt Settlement Program.

Let's see what happened during the Debt Settlement Program:

After searching the net and talking with several companies, Bob had chosen a reputable Debt Settlement Company to help him settle his debts.

His total debt was settled at an average of 40% of what he owed, so his creditors FORGAVE about $13,000 of debt.

Because the amount of the forgiven debt was over $600, Bob's creditor reported the settlement to the IRS and mailed him a 1099-C.  The 1099-C basically said that $13,000 had been forgiven and he needed to report that amount as additional income for the taxt year the forgiveness was granted.

But his Debt Settlement Company helped him understand that he was not going to be liable for the additional income and resulting tax on that income.

They provided him with a information about how to file IRS Form 982 and the other documents he needed to provide with his taxes.

IRS Form 4681, says that if, at the time of forgiveness, you were INSOLVENT (meaning your liabilities were greater than your assets), then the forgiven amount DID NOT HAVE TO BE INCLUDED as additional income!

Since Bob had completed an Asset vs. Liabilities worksheet, provided by his Debt Settlement Company, he was able to completely avoid any additional tax on the settlement or "forgiven" debt shown on the 1099-C!

If you have received a 1099-C and need help, we can help, please let us know!


Tags: debt collection, credit card debt, debt settlement, debt settlement vs bankruptcy, debt settlement in oregon, 1099-C, IRS Form 982, IRS Form 4681, debt management, additional taxes, IRS 4681

Have you received a 1099-C due to Cancellation of Debt?

1099C and cancelation of debt

If you have settled a debt or had a debt, you may receive an IRS Form 1099-C.  This doesn't necessarily mean that you will have to pay additional tax on the amount "forgiven".  Here's what you need to do:

The 1099-C has Instructions for Debtor:

You received this form because a Federal Government agency or an applicable financial entity (a lender) has discharged (canceled or forgiven) a debt you owed, or because an identifiable event has occurred that either is or is deemed to be a discharge of a debt of $600 or more.  If a creditor has discharged a debt you owed, you are required to include the discharged amount in your income, even if it is less that $600, on the "Other income" line on your Form 1040.

However, YOU MAY NOT HAVE TO INCLUDE ALL OF THE CANCELED DEBT IN YOUR INCOME (capitalization mine!).  There are EXCEPTIONS AND EXCLUSIONS, such as BANKRUPTCY or INSOLVENCY see Pub. 4681...for more details.

Most people who have had debts settled (forgiven) have gone through a very hard time, financially. And, most people who have had debts settled would fall into the catagory of INSOLVENCY, according to the IRS and several publications.

The bottom line is, if AT THE TIME OF SETTLEMENT your liabilites were greater than your assets, you were insolvent and therefore the amount of debt forgiven would be excluded.

We have helped hunderds of our clients to become DEBT FREE through DEBT SETTLEMENT, but we also have assisted them in AVOIDING (or paying very little) ADDITIONAL TAX after receiving a 1099-C.

We have put together a complete 1099-C Kit that will show you (and/or your tax preparer) how to fill out and file the proper forms.

CLICK HERE to get you FREE 1099-C KIT

Tags: debt forgiveness, 1099-C, IRS Form 982, additional taxes, IRS 4681

I Received a 1099-C, Now What?

received a 1099CIf you have received a 1099-C, DON'T PAY THE ADDITIONAL TAX until you know your rights!

If you or a debt settlement company negotiated a debt for less than the balance due and if that amount was more than $600, you most likely will receive a 1099-C.


The 1099-C looks like you will have to pay 100% of the settled or forgiven amount, but this is simply NOT TRUE!

However, a lot of tax preparers and even CPA's don't understand this law and how exemptions are calculated.

According to IRS Form 4681, there are several exemptions to including forgiven amounts back into taxable income. On page 4 of IRS Form 4681, there is an explanation of "INSOLVENCY". 

Basically the rule states:

If at the time of the settlement or forgiveness you were INSOLVENT, then the amount of the forgiveness IS NOT INCLUDED as additional taxable income.

How do you determine if you were insolvent?

At the time of the settlement, you need to show that your liabilities were only equal to or greater than your assets.

You need to complete a basic budget showing all of your income, outgo, and assets:

  • Equity in your home
  • Net value of your automobile(s), boat, etc.
  • Net value of jewelery, stocks, bonds, etc.
  • Savings or investment accounts
  • Net furniture value, coin collections, etc.

For most people who have negotiated a settlement of their credit card or cards, they usually do not have any real assets and therefore the amount forgiven is not included as additional taxable income.

You will need to complete IRS Form 982. You will check a couple of boxes and sign, and along with the Budget Worksheet, turn in with the 1099-C and your normal tax return.

Once again, don't be surprised if your tax preparer or accountant is not really up on this procedure! You might want to download IRS 4681 for them to review.

If you have already filed your taxes for the last two years and if you paid additional tax on the additional income added back into your adjusted gross income, you should file an AMENDED RETURN.

If you are still unsure of what or how to deal with a 1099-C, please let us help.

We have helped dozens of tax preparers and accountants deal with the 1099-C issue and would be glad to assist.

Got Questions? We've got ANSWERS!


received a 1099C


Tags: debt forgiveness, debt settlement in oregon, 1099-C, IRS Form 982, IRS Form 4681