Reporting Debt Discharged in a Court Settlement to the IRS

Reporting Debt Discharged In A Court Settlement To The Irs

There are some circumstances where information has to be reported to the IRS, even though the information does not trigger a tax. But the potential problem can be that the information reporting triggers an IRS audit or other consequences. The Form 1099-C, Cancellation of Debt, form can have this effect. In PLR 201927005 the IRS…

Avoiding Cancellation of Debt Using Rebates or Refunds

The Trade Or Business Requirement For The Sec. 199a Deduction

Can taxpayers avoid cancellation of debt income by structuring debt reductions as rebates or refunds?  The court touched on this issue in French v. Commissioner, T.C. Summary Opinion 2018-36. The Facts & Procedural History The taxpayers borrowed money to purchase a home.  When they failed to make their payments on the mortgage, the bank made contacted…

How are Employer Loans in Lieu of Wages Taxed?

Can you avoid paying Federal income tax by having your employer make loans to you in lieu of wages, and then have the employer forgive the loans over time?  The court addressed this in Wyatt v. Commissioner, T.C. Summary Opinion 2015-31. Facts & Procedural History Dr. Wyatt was a gynecologist.  He recruited to practice in Putnam…

Is an Insurance Agents Repayment of Advanced Commissions Cancellation of Debt Income?

If an insurance company makes loans to its life insurance agents in lieu of wages and the insurance agents use a portion of those funds to repay costs to the insurance company, how is that taxed?  The court addressed this in Harper v. Commissioner, T.C. Summary Opinion 2007-133. Facts & Procedural History Mrs. Harper was in the…