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Understanding the IRS Insolvency Form, specifically Form 982, can be crucial for individuals and businesses navigating financial difficulties. This form serves multiple purposes, primarily to report the exclusion of certain discharged debts from gross income, which can significantly affect tax liabilities. It facilitates the reduction of tax attributes arising from the discharge of indebtedness, allowing taxpayers to minimize their taxable income during insolvency. The form includes sections that require taxpayers to specify the reasons for debt discharge, whether related to insolvency, qualified farm debts, or real property. Moreover, it allows for a detailed account of how the discharged amounts impact various tax attributes, such as net operating losses or capital losses. Taxpayers must carefully consider their situation and the potential tax implications of these elections. Completing Form 982 requires attention to detail; it can directly influence future tax credits, basis adjustments, and property values. Additionally, appropriate attachments and adherence to the most current IRS regulations are vital for compliance. Overall, Form 982 is an essential tool for managing the financial complexities around insolvency.
Irs Insolvency Example
Form 982 |
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Reduction of Tax Attributes Due to Discharge of |
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OMB No. |
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Indebtedness (and Section 1082 Basis Adjustment) |
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(Rev. March 2018) |
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▶ Attach this form to your income tax return. |
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Attachment |
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Department of the Treasury |
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▶ Go to www.irs.gov/Form982 for instructions and the latest information. |
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Sequence No. 94 |
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Internal Revenue Service |
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Name shown on return |
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Identifying number |
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Part I General Information (see instructions)
1Amount excluded is due to (check applicable box(es)):
a |
Discharge of indebtedness in a title 11 case |
b |
Discharge of indebtedness to the extent insolvent (not in a title 11 case) |
c |
Discharge of qualified farm indebtedness |
d |
Discharge of qualified real property business indebtedness |
eDischarge of qualified principal residence indebtedness (Caution: See instructions before checking this box if debt
was discharged after 2017.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2 Total amount of discharged indebtedness excluded from gross income |
2 |
3Do you elect to treat all real property described in section 1221(a)(1), relating to property held for sale to
customers in the ordinary course of a trade or business, as if it were depreciable property? |
Yes |
No |
Part II Reduction of Tax Attributes. You must attach a description of any transactions resulting in the reduction in basis under section 1017. See Regulations section
Enter amount excluded from gross income:
4For a discharge of qualified real property business indebtedness applied to reduce the basis of
depreciable real property |
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5That you elect under section 108(b)(5) to apply first to reduce the basis (under section 1017) of
depreciable property . . . . . . . . . . . . . . . . . . . . . . . . . .
6Applied to reduce any net operating loss that occurred in the tax year of the discharge or carried
over to the tax year of the discharge . . . . . . . . . . . . . . . . . . . . .
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Applied to reduce any general business credit carryover to or from the tax year of the discharge . |
8Applied to reduce any minimum tax credit as of the beginning of the tax year immediately after the
tax year of the discharge . . . . . . . . . . . . . . . . . . . . . . . . .
9Applied to reduce any net capital loss for the tax year of the discharge, including any capital loss
carryovers to the tax year of the discharge . . . . . . . . . . . . . . . . . . .
10a Applied to reduce the basis of nondepreciable and depreciable property if not reduced on line 5. DO NOT use in the case of discharge of qualified farm indebtedness . . . . . . . . . .
bApplied to reduce the basis of your principal residence. Enter amount here ONLY if line 1e is
checked . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11For a discharge of qualified farm indebtedness applied to reduce the basis of:
aDepreciable property used or held for use in a trade or business or for the production of income if
not reduced on line 5 . . . . . . . . . . . . . . . . . . . . . . . . . .
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Land used or held for use in a trade or business of farming |
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Other property used or held for use in a trade or business or for the production of income . . . |
12Applied to reduce any passive activity loss and credit carryovers from the tax year of the discharge
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Applied to reduce any foreign tax credit carryover to or from the tax year of the discharge . . . |
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10a
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Part III Consent of Corporation to Adjustment of Basis of Its Property Under Section 1082(a)(2)
Under section 1081(b), the corporation named above has excluded $ |
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from its gross income |
for the tax year beginning |
and ending |
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Under that section, the corporation consents to have the basis of its property adjusted in accordance with the regulations prescribed under section 1082(a)(2) in effect at the time of filing its income tax return for that year. The corporation is organized under the laws
of |
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(State of incorporation) |
Note: You must attach a description of the transactions resulting in the nonrecognition of gain under section 1081.
For Paperwork Reduction Act Notice, see separate instructions. |
Cat. No. 17066E |
Form 982 (Rev. |
File Breakdown
| Fact Name | Fact Detail |
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| Form Purpose | Form 982 is used to reduce tax attributes due to the discharge of indebtedness. |
| Governing Law | The form is governed by the Internal Revenue Code, specifically sections 108 and 1017. |
| Filing Requirement | This form must be attached to your income tax return. |
| Form Update | The current version of Form 982 was revised in March 2018. |
| Exclusion Types | There are specific types of exclusions available including discharge from title 11 cases and qualified farm indebtedness. |
| Discharge Amount | The total amount of discharged indebtedness must be reported on the form. |
| Real Property Election | Taxpayers can elect to treat all real property as depreciable property under certain conditions. |
| Attribute Reduction | Part II of the form details how tax attributes are reduced due to discharge. |
| Passive Activity Losses | Discharges may also apply to reduce passive activity loss and credit carryovers. |
| Corporate Consent | Certain corporations may need to consent to basis adjustments under specific sections. |
Guide to Using Irs Insolvency
Filling out the IRS Insolvency Form can seem daunting, but taking it step by step will make the process manageable. Begin by gathering the necessary information and start filling out the details accurately. Once completed, you will attach this form to your income tax return. You'll also find it helpful to make sure you have any required documentation ready for submission.
- Obtain Form 982 from the IRS website or your tax preparation software.
- Write your name and identifying number at the top of the form, as shown on your income tax return.
- In Part I, check the appropriate box or boxes to indicate the reason for the amount excluded from gross income.
- Enter the total amount of discharged indebtedness excluded from gross income in line 2.
- Answer the question regarding real property treatment in line 3 by checking "Yes" or "No."
- Move to Part II and enter amounts in the appropriate lines (4-13) detailing how the exclusions apply to different credits or losses.
- If applicable, provide a brief description of any transactions resulting in a basis reduction under section 1017.
- In Part III, if you are a corporation, include the name of the corporation and the amount excluded from gross income.
- Ensure all information is accurate, and review the instructions for any necessary additional attachments.
- Sign and date the form, if required, before attaching it to your tax return for submission.
Get Answers on Irs Insolvency
What is IRS Form 982?
IRS Form 982 is used to reduce tax attributes due to the discharge of indebtedness. Taxpayers can use this form to exclude certain amounts of discharged debt from their gross income. The form specifically addresses situations such as bankruptcy (Title 11 cases), insolvency, and certain qualified indebtedness.
Who should file Form 982?
Individuals, businesses, and corporations that have had their indebtedness discharged should file Form 982. This includes those in bankruptcy proceedings, those who have become insolvent, or those who have qualified debt related to farming or real property. It is important to attach this form to the relevant income tax return.
What types of discharged indebtedness can be excluded?
There are several types of discharged indebtedness that can be excluded, including:
- Discharge of indebtedness in a Title 11 case
- Discharge of indebtedness to the extent of insolvency (not in a Title 11 case)
- Discharge of qualified farm indebtedness
- Discharge of qualified real property business indebtedness
- Discharge of qualified principal residence indebtedness
How do I determine my total amount of discharged indebtedness?
To determine your total amount of discharged indebtedness, review your financial records for any debts that were forgiven or canceled during the tax year. Be sure to include any debts directly related to your business or property that qualify for exclusion under the guidelines of the form.
What does "insolvent" mean in the context of Form 982?
Insolvency, as it pertains to Form 982, refers to a situation where your total liabilities exceed your total assets. If you are insolvent at the time your debt is discharged, you may qualify to exclude that debt from your gross income. Documenting this insolvency is critical for the proper completion of the form.
What happens if the discharged debt is related to my principal residence?
When discharged debt is related to your principal residence, certain exclusions may apply. If you check the box for qualified principal residence indebtedness on the form, specific rules govern how that amount is treated. Be cautious, especially for debt discharged after 2017, as different rules may impact your tax situation.
What else do I need to include with Form 982?
In addition to Form 982, you must include a description of any transactions that result in a reduction of basis under Section 1017. This helps the IRS understand how your financial situation changed due to the discharge of indebtedness. Make sure to follow any additional instructions provided for the specific sections of the form.
Common mistakes
Completing the IRS Insolvency Form (Form 982) can be a tricky process for many people. Several common mistakes often lead to errors or delays in processing. Below, ten frequent pitfalls are outlined to help individuals navigate their way through filling out this important form.
1. Failing to Attach the Form: One of the most significant oversights occurs when individuals forget to attach Form 982 to their income tax return. This form is crucial, and failing to include it can result in rejected claims.
2. Incorrectly Marking the Boxes: Applicants often check the wrong boxes in Part I regarding the discharge of indebtedness. Each box corresponds to a specific situation. Misunderstanding the categories can lead to inaccurate reporting of one’s financial status.
3. Failing to Calculate Total Amount Accurately: Many people miscalculate the total amount of discharged indebtedness excluded from their gross income. Precision is key here, and using a calculator can help ensure accuracy.
4. Ignoring Instructions for Property Depreciation: A common error emerges when individuals neglect to read the guidance about electing treatment for real property as depreciable property. Misunderstandings may affect potential tax benefits.
5. Omitting Required Descriptions: Form 982 requires a description of transactions that result in the reduction in basis under Section 1017. Leaving out this information can impede the processing of the form.
6. Misunderstanding the Reduction of Tax Attributes: In Part II, applicants often confuse the various reductions of tax attributes. Each line item must be approached with care, as oversights can invalidate parts of the submission.
7. Missing Information on Non-depreciable Property: When reducing the basis of non-depreciable and depreciable property, applicants sometimes fail to reference the correct lines. It’s essential to follow the instructions closely to ensure compliance.
8. Not Considering Foreign Tax Credits: For those who have foreign tax credits, missing information related to foreign tax credit carryover can be a critical oversight. This can lead to complications in tax filings.
9. Ignoring Corporate Consent Requirements: For corporations filling out Part III, failing to obtain the necessary consents for adjustments of asset bases can hinder the completion process. Corporate tax obligations differ from individual requirements.
10. Submitting Without a Review: Finally, individuals often submit their forms without thoroughly reviewing their entries. A final check can catch simple mistakes that could affect the outcome.
By keeping these common mistakes in mind, individuals can better navigate the process of completing and submitting Form 982. Careful attention to detail helps ensure that tax filings are processed smoothly and accurately.
Documents used along the form
The IRS Form 982 is crucial for taxpayers who have encountered debt discharge due to insolvency or bankruptcy. However, it is often used alongside several other forms and documents, each serving a specific purpose in the reporting and tax adjustment process. Understanding these forms can assist in navigating the complexities of financial recovery after insolvency.
- Form 1040: This is the standard individual income tax return form used to report annual income to the IRS. It serves as the foundation for filing taxes and is necessary for including any applicable tax adjustments from Form 982.
- Form 8862: This form is used to claim the Earned Income Tax Credit (EITC) after it has been denied previously. If your financial situation changes post-insolvency and makes you eligible for this credit, filing Form 8862 is essential.
- Form 8508: This form is a request for an extension of time to file certain information returns. If you need additional time to gather information necessary to complete your tax returns, including adjustments related to insolvency, using Form 8508 can help manage deadlines.
- Form 9825: This form allows you to request a determination of the amount of any tax attributes to be reduced. It’s significant when determining the exact tax benefits that result from the discharge of indebtedness that you're reporting on Form 982.
- Schedule D: Used to report capital gains and losses, this schedule is important for taxpayers claiming losses linked to discharged debts. If debts affect the sale of capital assets, Schedule D must be completed.
- Form 1099-C: This form is provided by creditors to report cancellation of debt amount to the taxpayer and the IRS. It acts as a record of the discharge and is needed for accurately reporting as income or applying adjustments on Form 982.
Filing the correct forms and understanding their implications is essential after experiencing debt discharge. Each document plays a vital role in accurately reporting financial status and ensuring compliance with the IRS's regulations. Thorough preparation and attention to detail can mitigate potential tax liabilities and lead toward effective financial recovery.
Similar forms
The IRS Insolvency form, also known as Form 982, serves specific purposes related to tax and insolvency. Several other tax-related forms share similar functionalities regarding debt discharge, income exclusion, and tax attribute adjustments. Here are eight such documents and how they relate to Form 982:
- Form 1099-C: This form reports the cancellation of debt. Like Form 982, it addresses how discharged debt must be accounted for on tax returns, signaling potential income that may need to be reported.
- Form 1040: The standard individual income tax return. Taxpayers use this form to report overall income, including any amounts that may be excluded due to Form 982 filings.
- Form 8880: This form is for claiming the Credit for Qualified Retirement Savings Contributions. It reflects similar tax attribute reductions as Form 982 by potentially lowering tax owed based on specific financial activities.
- Form 8862: It is used to claim the Earned Income Tax Credit after disqualification. Like Form 982, it necessitates providing information about changes in financial circumstances affecting tax obligations.
- Form 4797: This form captures sales of business property. When assets are discharged or revalued, similar adjustments are made concerning how tax attributes are treated, much like in Form 982.
- Form 8594: It pertains to asset acquisitions. Both forms deal with the proper allocation of financial figures when there are significant changes in debt or asset values, ensuring accurate tax reporting.
- Form 6252: For reporting income from installment sales. This can relate to how debt discharge impacts ongoing transactions and income recognition over time, similar to Form 982.
- Form 8833: This form is used to disclose treaty-based return positions. Just as Form 982 reflects certain tax attribute adjustments due to insolvency, Form 8833 addresses adjustments stemming from tax treaties that alter typical considerations.
Dos and Don'ts
- Do: Review the instructions for Form 982 carefully to ensure you understand the requirements.
- Do: Gather all relevant information regarding your discharge of indebtedness before starting the form.
- Do: Check all applicable boxes accurately to reflect your situation and make sure to include all necessary details.
- Do: Attach Form 982 to your income tax return, as this is a requirement for proper processing.
- Do: Maintain a copy of everything submitted for your records, as you may need it for future reference.
- Don't: Ignore the deadlines for filing your tax return, as this may affect your eligibility for exclusions.
- Don't: Submit incomplete information or underestimate the total amount of discharged indebtedness.
- Don't: Forget to seek help if you are uncertain about any part of the form; this can lead to costly mistakes.
- Don't: Make assumptions about tax benefits; always verify against the official IRS guidelines.
- Don't: Delay in filing if you have already completed the form; submission is crucial to avoid potential penalties.
Misconceptions
- Insolvency means bankruptcy. Many individuals confuse insolvency with bankruptcy. While both terms indicate financial difficulty, insolvency specifically refers to not being able to pay debts, whereas bankruptcy is a legal process that helps individuals or businesses resolve their debts.
- Form 982 is only for businesses. This form can be used by both individuals and businesses who qualify for debt discharge under various circumstances.
- Everyone with debt can use Form 982. Only those who meet specific conditions, such as receiving a discharge of indebtedness due to insolvency, are eligible to file this form.
- Once you use Form 982, you’re free from all debts. Filing Form 982 does not eliminate debts. Instead, it allows for the exclusion of certain discharged debts from gross income.
- Filing Form 982 is optional regardless of situation. If you qualify for debt discharge, filing this form may be necessary to exclude that debt from taxable income.
- Form 982 can be submitted at any time. It must be attached to your income tax return for the year of the discharge. Delaying this could result in issues with your tax return.
- You do not need documentation for Form 982. Supporting documents regarding the discharge of indebtedness should be kept readily available, as they may be required by the IRS.
- The IRS automatically knows about my insolvency. It is your responsibility to report your insolvency and the associated debt discharge when filing Form 982. The IRS won’t have prior knowledge unless disclosed.
- All types of debt are eligible for exclusion using Form 982. Only certain qualified indebtedness qualifies for exclusion. These include discharged debts related to real property, business indebtedness, and others outlined in the form.
- Using Form 982 guarantees a tax refund. Completing the form does not guarantee a refund. It simply addresses how you report income from discharged debts on your tax return.
Key takeaways
Filling out the IRS Insolvency Form (Form 982) involves careful consideration of the following key points:
- Attach to Tax Return: Form 982 must be submitted with your income tax return. Make sure to do this for proper processing.
- Select Correct Boxes: Indicate the reason for excluding amounts from gross income by checking the appropriate box in Part I. This could include reasons like discharge of indebtedness or insolvency.
- Understand Tax Attributes: Review how the form allows you to reduce tax attributes. This includes adjustments to the basis of depreciable property and carryovers related to losses or credits.
- Documentation Required: Provide necessary descriptions of transactions leading to any basis reductions. This documentation is vital for compliance and may be specified in the form instructions.