“Mr. Williams, I just received a Form 1099-C in the amount of $3,000 from my old credit card company. What am I to do about this? Do I have to include this as income on my tax return? I do not have the money to pay taxes on this income. Is there anything that you can do to help me?”

This conversation will take place millions of times between individuals and their tax advisors this tax season. The rising number of debt cancellations, foreclosures, repossessions and abandonments has placed this tax issue in the households of countless taxpayers. Current economic conditions, not experienced since the Great Depression, have forced many individuals to make financial decisions regarding burdensome debt obligations that, unknown to them, have severe tax consequences. The IRS predicts that there will be an estimated 2 million 1099-C filings, resulting from debt forgiveness settlements.

Any individual that has received debt forgiveness in the amount of $600 or more as a result of debt cancellations, foreclosures, repossessions and abandonments must include the value of the debt forgiveness as other income on their tax return. These determinations should be thoroughly discussed with one’s tax expert before, during and after any discussions with creditors, debt collectors and debt buyers regarding the settlement of personal debt. Loan modifications programs enter into one’s mortgage company are also covered under these tax regulations and should be discussed with one’s tax advisor.

The tax implications of theses financial decisions are real dollars and cents and, therefore, should be fully evaluated with a tax expert. There are a few exceptions that we want our clients to be aware of in their efforts to reduce or eliminate the tax burden of these critical financial decisions. As the year ends and many financial institutions are required to make decisions about the status of certain obligations, it is to your advantage that you are equipped to engage in knowledgeable negotiations to resolve matters. We want our clients to be in a win/win situation, with full understanding of their choices.

If you have had a vehicle reposed, mortgage modified, debt cancelled or abandoned real property, call us immediately at 1(866) 278-4266 for a consultation. We are expecting lots of volume in this area, so please do not hesitate to give us a call. A few minutes of your time could save you hundreds of dollars in taxes. For more information regarding cancelled debt, read Publication #4681 available at www.irs.gov.