Legal Question in Tax Law in California

Re: Can IRS tax cancelled debt from Bankruptcy?

I agree with Leslie, esq....I think you probably can avoid paying tax on this cancelled debt! Seek help..either an enrolled agent, CPA,,or attorney...go for it!!

Re: Can IRS tax cancelled debt from Bankruptcy?

In general, you realize income to the extent your debts are forgiven. However, there are two exceptions that may be applicable to you. The first is that you will not realize income from the discharge of debts in bankruptcy proceedings under Title 11 of the U.S. Code. This Title is for reorganization and is primarily used by businesses, so you will need to check what Title you used. The second exception is that you will not realize income if you are "insolvent" outside of bankruptcy. This means that the total amount of your liabilities exceeds the total fair market value of your assets immediately prior to discharge in bankruptcy. The amount of liabilities includes even loans which are "nonrecourse" to you (for which you are not personally liable, such as many car loans), but only to the extent the loans are discharged. Whether or not your personal property is exempt for purposes of bankruptcy is not important in this calculation. If you believe that you may qualify for one or the other exception, I would suggest that you contact an attorney or an "enrolled agent" (a non-attorney who can practice before the IRS) to straighten the matter out. Make sure to bring a copy of your bankruptcy file. (This statement does not constitute my representation of you, nor is it an attorney-client communication.)