Are you one of the millions that you have income from the cancellation or discharge of indebtedness?
if so, keep in mind that insolvent taxpayers can escape tax on forgiven debts, in rare occasions. Where those taxpayers whose liabilities are greater than the fair market value of their assets can exclude income from forgiven debts up to the amount of their insolvency.
A couple whose business was repossessed were unable to prove insolvency. They had poor records and couldn’t show the business had no value. One company they owned had a bank debt secured by a lien on the couple’s assets. The bank took over the firm, sold it, kept the proceeds, and cancelled the rest
of the debt. The couple argued they were insolvent by $7 million and shouldn’t be taxed on the canceled debt, but a district court ruled against them.
Accurate records are always the key, not just keeping nooks, accurate books.
(Kelly, D.C., N.Y.)