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Late Tax

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Late Tax

Late tax 1. Late tax   Canceled Debts Table of Contents General RulesForm 1099-C Discounts and loan modifications Sales or other dispositions (such as foreclosures and repossessions) Abandonments Stockholder debt This chapter discusses the tax treatment of canceled debts. Late tax General Rules Generally, if a debt for which you are personally liable is forgiven or discharged for less than the full amount owed, the debt is considered canceled in whatever amount it remained unpaid. Late tax There are exceptions to this rule, discussed under Exceptions , later. Late tax Generally, you must include the canceled debt in your income. Late tax However, you may be able to exclude the canceled debt. Late tax See Exclusions , later. Late tax Example. Late tax John owed $1,000 to Mary. Late tax Mary agreed to accept and John paid $400 in satisfaction of the entire debt. Late tax John has canceled debt of $600. Late tax Example. Late tax Margaret owed $1,000 to Henry. Late tax Henry and Margaret agreed that Margaret would provide Henry with services (instead of money) in full satisfaction of the debt. Late tax Margaret does not have canceled debt. Late tax Instead, she has income from services. Late tax A debt includes any indebtedness: For which you are liable, or Subject to which you hold property. Late tax Debt for which you are personally liable is recourse debt. Late tax All other debt is nonrecourse debt. Late tax If you are not personally liable for the debt, you do not have ordinary income from the cancellation of debt unless you retain the collateral and either: The lender offers a discount for the early payment of the debt, or The lender agrees to a loan modification that results in the reduction of the principal balance of the debt. Late tax See Discounts and loan modifications , later. Late tax However, upon the disposition of the property securing a nonrecourse debt, the amount realized includes the entire unpaid amount of the debt, not just the FMV of the property. Late tax As a result, you may realize a gain or loss if the outstanding debt immediately before the disposition is more or less than your adjusted basis in the property. Late tax For more details on figuring your gain or loss, see chapter 2 of this publication or see Publication 544. Late tax There are several exceptions and exclusions that may result in part or all of a canceled debt being nontaxable. Late tax See Exceptions and Exclusions, later. Late tax You must report any taxable canceled debt as ordinary income on: Form 1040 or Form 1040NR, line 21, if the debt is a nonbusiness debt; Schedule C (Form 1040), line 6 (or Schedule C-EZ (Form 1040), line 1), if the debt is related to a nonfarm sole proprietorship; Schedule E (Form 1040), line 3, if the debt is related to nonfarm rental of real property; Form 4835, line 6, if the debt is related to a farm rental activity for which you use Form 4835 to report farm rental income based on crops or livestock produced by a tenant; or Schedule F (Form 1040), line 8, if the debt is farm debt and you are a farmer. Late tax Form 1099-C If you receive a Form 1099-C, that means an applicable entity has reported an identifiable event to the IRS regarding a debt you owe. Late tax The identifiable event may be an actual cancellation of the debt or it may be an event the applicable entity is required, solely for purposes of reporting to the IRS, to treat as a cancellation of debt. Late tax For information on the reasons an applicable entity files Form 1099-C, see Identifiable event codes, later. Late tax Unless you meet one of the exceptions or exclusions discussed later, this canceled debt is ordinary income and must be reported on the appropriate form discussed above. Late tax An applicable entity includes: A federal government agency, A financial institution, A credit union, and Any organization a significant trade or business of which is lending money. Late tax Identifiable event codes. Late tax    Box 6 of Form 1099-C should indicate the reason the creditor filed this form. Late tax The codes shown in box 6 are explained below. Late tax Also see the chart after the explanation for a quick reference guide for the codes used in Box 6. Late tax Note. Late tax Codes A through G and I identify specific occurrences resulting from an actual discharge of indebtedness. Late tax However, Code H, Expiration of nonpayment testing period, does not necessarily identify an actual discharge of indebtedness. Late tax Code A — Bankruptcy. Late tax Code A is used to identify cancellation of debt as a result of a title 11 bankruptcy case. Late tax See Bankruptcy , later. Late tax Code B — Other judicial debt relief. Late tax Code B is used to identify cancellation of debt as a result of a receivership, foreclosure, or similar federal or state court proceeding other than bankruptcy. Late tax Code C — Statute of limitations or expiration of deficiency period. Late tax Code C is used to identify cancellation of debt either when the statute of limitations for collecting the debt expires or when the statutory period for filing a claim or beginning a deficiency judgment proceeding expires. Late tax In the case of the expiration of a statute of limitations, an identifiable event occurs only if and when your affirmative defense of the statute of limitations is upheld in a final judgment or decision in a judicial proceeding, and the period for appealing the judgment or decision has expired. Late tax Code D — Foreclosure election. Late tax Code D is used to identify cancellation of debt when the creditor elects foreclosure remedies that statutorily end or bar the creditor's right to pursue collection of the debt. Late tax This event applies to a mortgage lender or holder who is barred from pursuing debt collection after a power of sale in the mortgage or deed of trust is exercised. Late tax Code E — Debt relief from probate or similar proceeding. Late tax Code E is used to identify cancellation of debt as a result of a probate court or similar legal proceeding. Late tax Code F — By agreement. Late tax Code F is used to identify cancellation of debt as a result of an agreement between the creditor and the debtor to cancel the debt at less than full consideration. Late tax Code G — Decision or policy to discontinue collection. Late tax Code G is used to identify cancellation of debt as a result of a decision or a defined policy of the creditor to discontinue collection activity and cancel the debt. Late tax For purposes of this identifiable event, a defined policy includes both a written policy and the creditor's established business practice. Late tax Code H — Expiration of nonpayment testing period. Late tax Code H is used to indicate that the creditor has not received a payment on the debt during a testing period ending on December 31, 2013. Late tax The testing period is a 36-month period increased by the number of months the creditor was prevented from engaging in collection activity by a stay in bankruptcy or similar bar under state or local law. Late tax This identifiable event applies only for a creditor that is a financial institution or credit union (and certain of their subsidiaries), the Federal Deposit Insurance Corporation (FDIC), Resolution Trust Corporation (RTC), National Credit Union Administration (NCUA), and other Federal executive agencies. Late tax Expiration of the nonpayment testing period does not necessarily result from an actual discharge of indebtedness. Late tax Code I — Other actual discharge before identifiable event. Late tax Code I is used to identify an actual cancellation of debt that occurs before any of the identifiable events described in codes A through H. Late tax Form 1099-C Reference Guide for Box 6 Identifiable Event Codes A Bankruptcy B Other judicial debt relief C Statute of limitations or expiration of deficiency period D Foreclosure election E Debt relief from probate or similar proceeding F By agreement G Decision or policy to discontinue collection H Expiration of nonpayment testing period I Other actual discharge before identifiable event Even if you did not receive a Form 1099-C, you must report canceled debt as gross income on your tax return unless one of the exceptions or exclusions described later applies. Late tax Amount of canceled debt. Late tax    The amount in box 2 of Form 1099-C may represent some or all of the debt that has been canceled or treated as canceled. Late tax The amount in box 2 will include principal and may include interest and other nonprincipal amounts (such as fees or penalties). Late tax Unless you meet one of the exceptions or exclusions discussed later, the amount of the debt that has been canceled is ordinary income and must be reported on the appropriate form as discussed earlier. Late tax Interest included in canceled debt. Late tax    If any interest is included in the amount of canceled debt in box 2, it will be shown in box 3. Late tax Whether the interest portion of the canceled debt must be included in your income depends on whether the interest would be deductible if you paid it. Late tax See Deductible Debt under Exceptions, later. Late tax Persons who each receive a Form 1099-C showing the full amount of debt. Late tax    If you and another person were jointly and severally liable for a canceled debt, each of you may get a Form 1099-C showing the entire amount of the canceled debt. Late tax However, you may not have to report that entire amount as income. Late tax The amount, if any, you must report depends on all the facts and circumstances, including: State law, The amount of debt proceeds each person received, How much of any interest deduction from the debt was claimed by each person, How much of the basis of any co-owned property bought with the debt proceeds was allocated to each co-owner, and Whether the canceled debt qualifies for any of the exceptions or exclusions described in this publication. Late tax See Example 3 under Insolvency, later. Late tax Discounts and loan modifications If a lender discounts (reduces) the principal balance of a loan because you pay it off early, or agrees to a loan modification (a “workout”) that includes a reduction in the principal balance of a loan, the amount of the discount or the amount of principal reduction is canceled debt. Late tax However, if the debt is nonrecourse and you did not retain the collateral, you do not have cancellation of the debt income. Late tax The amount of the canceled debt must be included in income unless one of the exceptions or exclusions described later applies. Late tax For more details, see Exceptions and Exclusions, later. Late tax Sales or other dispositions (such as foreclosures and repossessions) Recourse debt. Late tax   If you owned property that was subject to a recourse debt in excess of the FMV of the property, the lender's foreclosure or repossession of the property is treated as a sale or disposition of the property by you and may result in your realization of gain or loss. Late tax The gain or loss on the disposition of the property is measured by the difference between the FMV of the property at the time of the disposition and your adjusted basis (usually your cost) in the property. Late tax The character of the gain or loss (such as ordinary or capital) is determined by the character of the property. Late tax If the lender forgives all or part of the amount of the debt in excess of the FMV of the property, the cancellation of the excess debt may result in ordinary income. Late tax The ordinary income from the cancellation of debt (the excess of the canceled debt over the FMV of the property) must be included in your gross income reported on your tax return unless one of the exceptions or exclusions described later applies. Late tax For more details, see Exceptions and Exclusions, later. Late tax Nonrecourse debt. Late tax   If you owned property that was subject to a nonrecourse debt in excess of the FMV of the property, the lender's foreclosure on the property does not result in ordinary income from the cancellation of debt. Late tax The entire amount of the nonrecourse debt is treated as an amount realized on the disposition of the property. Late tax The gain or loss on the disposition of the property is measured by the difference between the total amount realized (the entire amount of the nonrecourse debt plus the amount of cash and the FMV of any property received) and your adjusted basis in the property. Late tax The character of the gain or loss is determined by the character of the property. Late tax More information. Late tax    See Publications 523, 544, and 551, and chapter 2 of this publication for more details. Late tax Abandonments Recourse debt. Late tax   If you abandon property that secures a debt for which you are personally liable (recourse debt) and the debt is canceled, you will realize ordinary income equal to the canceled debt. Late tax You must report this income on your tax return unless one of the exceptions or exclusions described later applies. Late tax For more details, see Exceptions and Exclusions, later. Late tax This income is separate from any amount realized from the abandonment of the property. Late tax For more details, see chapter 3. Late tax Nonrecourse debt. Late tax   If you abandon property that secures a debt for which you are not personally liable (nonrecourse debt), you may realize gain or loss but will not have cancellation of indebtedness income. Late tax Stockholder debt If you are a stockholder in a corporation and the corporation cancels or forgives your debt to it, the canceled debt is a constructive distribution. Late tax For more information, see Publication 542, Corporations. Late tax Prev  Up  Next   Home   More Online Publications
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Tax Relief for Victims of Floods in Nebraska

Updated 11/21/11 to add the Omaha Indian Reservation and Thurston county.
Updated 9/8/11 to add Lincoln, Nemaha and Richardson counties.

MIL-2011-06-NE, Aug. 17, 2011

Victims of flooding beginning on May 24, 2011 in parts of Nebraska may qualify for tax relief from the Internal Revenue Service.

The President has declared Boyd, Burt, Cass, Dakota, Dixon, Douglas, Knox, Lincoln, Nemaha, Richardson, Sarpy, Thurston and Washington counties and the Omaha Indian Reservation a federal disaster area. Individuals who reside or have a business in these localities may qualify for tax relief.

As a result, the IRS has postponed until Aug. 1, 2011, certain deadlines occurring from May 24 to Aug. 1 that affect taxpayers who live or have a business in the disaster area. This includes the June 15 deadline for making estimated tax payments.

In addition, the IRS is abating the failure-to-deposit penalties for employment and excise tax deposits due on or after May 24 and on or before June 8, 2011, as long as the deposits were made by June 8, 2011.

If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the postponement period.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request this tax relief.

Covered Disaster Area

The areas listed above constitute a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.

Grant of Relief

Under section 7508A, the IRS has given affected taxpayers until Aug. 1, 2011, to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after May 24 and on or before Aug. 1, 2011.

The IRS also gives affected taxpayers until Aug. 1 to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (Aug. 20, 2007), that are due to be performed on or after May 24 and on or before Aug. 1.

This relief also includes the filing of Form 5500 series returns, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise tax deposits due on or after May 24 and on or before June 8, provided the taxpayer made these deposits by June 8.

Casualty Losses

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving, depending on other income factors.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684 and its instructions.

Affected taxpayers claiming the disaster loss on last year’s return should put the Disaster Designation, "Nebraska Flooding," at the top of the form so that the IRS can expedite the processing of the refund.

Other Relief

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.

Taxpayers may download forms and publications or order them by calling 1-800-TAX-FORM (1-800-829-3676). The IRS toll-free number for general tax questions is 1-800-829-1040.

Related Information: Recent IRS Disaster Relief Announcements
 

 

Page Last Reviewed or Updated: 20-Feb-2014

The Late Tax

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