B
BinaryMan
Guest
- Jurisdiction
- Nevada
I want to reduce my tax exposure when I receive a 1099-C for cancelled loans by filing a Form 982 for insolvency, but I am not sure which and whose assets and liabilities are considered (I am married) and how an LLC would play into it. Real property is likely to be the largest asset in the future but I believe some value of my retirement pension is also considered (it's not much yet but will grow), as are "interest in businesses" (including an LLC, if I am an owner, I assume).
The first 1099-C will come randomly for a past defaulted debt, although it has been 6 years (statute of limitations has run) and collectors still call. I assume the original company will eventually give up and get around to sending it (they do not sell their loans), and I expect an amount over $150,000. However, I have personal liabilities around $200,000 and my wife has a similar amount. We both have personal assets under $50,000 (in non-joint accounts). My assumption is that my debts and my assets only are used for this one: 350k liabilities and under 50k assets leaves at least 300k insolvency which is greater than the 150k, so I should not owe any taxes for this event, correct?
The second 1099-C will come from a forgiven student debt, the 200k above, in 10 or so years. This time my tax liability would be about equal to my assets at the time of that event as I will have no other debts. In this case, should I be focused on shifting assets to my wife or a business that my wife is owner of so that my assets are very low at that time? Is there a "look back" period I need to be aware of, or can I legally perform asset management any time prior to receiving the 1099-C to reduce my future taxes when I get it?
The third 1099-C is the same as above, except for my wife and because she does not get the public service forgiveness, her time frame is 20-25 years and not 10 like mine. After the second event above can I then shift the assets back to myself well ahead of time, or into an irrevocable trust, to avoid that tax consequence?
I have found no IRS guidance on what is permissible BEFORE the event, only the (obvious) fact that it is pointless/fraudulent to move things around AFTER the event because the asset/liability calculation is at a particular point in time. Various things I have read indicate that if the debt is not joint (none of these are), then the assets used can only be a portion of joint assets and the individual's own assets. As such, similar to an asset protection strategy, one would want to minimize their own assets when facing a known future 1099-C event. It is not clear if an LLC reduces assets for the purpose of a Form 982 calculation (because the assets are then in the LLC?).
On another note, regarding the "untimely" 1099-C that I expect any year now, I want to see thoughts on this:
"The real issue is that there is no direct form to notice the IRS of a FRAUDULENT 1099C filing. The law is clear that Jan 31 following the FIRST identifiable event occurs the creditor MUST file a 1099C. NOTE THAT THE WORD IS IMPERATIVE. Failing to file at the first identifiable event includes the packaging for sale of an unpaid debt, or Jan 31 following 3 years of nonpayment or charge off by the creditor, or ceasing to attempt collection (this includes failure to send billing on a regular basis and failure to file suit, it by definition must be no later than the statutory date to file a suit for recovery in a given state). If any of these have taken place then the creditor MUST send the 1099C the following Jan 31 by law. Sending it any other time is fraud by definition."
My credit report has listed the trade line as "charged off" or "written off" for at least 3 years now and the statute of limitations to sue has also passed - so shouldn't they have been obligated to send a 1099-C by now?
The first 1099-C will come randomly for a past defaulted debt, although it has been 6 years (statute of limitations has run) and collectors still call. I assume the original company will eventually give up and get around to sending it (they do not sell their loans), and I expect an amount over $150,000. However, I have personal liabilities around $200,000 and my wife has a similar amount. We both have personal assets under $50,000 (in non-joint accounts). My assumption is that my debts and my assets only are used for this one: 350k liabilities and under 50k assets leaves at least 300k insolvency which is greater than the 150k, so I should not owe any taxes for this event, correct?
The second 1099-C will come from a forgiven student debt, the 200k above, in 10 or so years. This time my tax liability would be about equal to my assets at the time of that event as I will have no other debts. In this case, should I be focused on shifting assets to my wife or a business that my wife is owner of so that my assets are very low at that time? Is there a "look back" period I need to be aware of, or can I legally perform asset management any time prior to receiving the 1099-C to reduce my future taxes when I get it?
The third 1099-C is the same as above, except for my wife and because she does not get the public service forgiveness, her time frame is 20-25 years and not 10 like mine. After the second event above can I then shift the assets back to myself well ahead of time, or into an irrevocable trust, to avoid that tax consequence?
I have found no IRS guidance on what is permissible BEFORE the event, only the (obvious) fact that it is pointless/fraudulent to move things around AFTER the event because the asset/liability calculation is at a particular point in time. Various things I have read indicate that if the debt is not joint (none of these are), then the assets used can only be a portion of joint assets and the individual's own assets. As such, similar to an asset protection strategy, one would want to minimize their own assets when facing a known future 1099-C event. It is not clear if an LLC reduces assets for the purpose of a Form 982 calculation (because the assets are then in the LLC?).
On another note, regarding the "untimely" 1099-C that I expect any year now, I want to see thoughts on this:
"The real issue is that there is no direct form to notice the IRS of a FRAUDULENT 1099C filing. The law is clear that Jan 31 following the FIRST identifiable event occurs the creditor MUST file a 1099C. NOTE THAT THE WORD IS IMPERATIVE. Failing to file at the first identifiable event includes the packaging for sale of an unpaid debt, or Jan 31 following 3 years of nonpayment or charge off by the creditor, or ceasing to attempt collection (this includes failure to send billing on a regular basis and failure to file suit, it by definition must be no later than the statutory date to file a suit for recovery in a given state). If any of these have taken place then the creditor MUST send the 1099C the following Jan 31 by law. Sending it any other time is fraud by definition."
My credit report has listed the trade line as "charged off" or "written off" for at least 3 years now and the statute of limitations to sue has also passed - so shouldn't they have been obligated to send a 1099-C by now?
