Helpfull hints from IRS on foreclosures & 1099’s

Our local IRS special procedures folks met with Chapter 13 lawyers this week and said: watch out for defective 1099’s reporting cancellation of debt “income”. Save your documents surrounding foreclosures, the debt involved, your basis and the property’s value.

We lawyers rolled our eyes when IRS proposed that we send our clients back to the creditor who issued the erroneous 1099, reporting debt forgiveness, for a correction. Nuts, these mortgage servicers can’t get the accounting right when they still have some skin in the game. Once the foreclosure has taken place, good luck trying to get the right info reported to the IRS.

For the time being, it appears that IRS merely includes the creditor’s information on the 1099 into its system. It may then be up to the borrower-taxpayer to prove up either that he is eligible to exclude cancellation of indebtedness income or to counter the facts in the creditor’s 1099.

Save your papers, folks.

Related posts:

1. What Are the Tax Consequences of a Short Sale?
2. Ten Tax Facts About Mortgage Forgiveness
3. Tax Fact 2-Mortgage Debt Forgiveness Exclusion Financial Limits