Discharge of Indebtedness Supporting documents?

Good day, Everyone!



Two days ago, my husband received a CP501 notice from the IRS indicating that hubby has some unpaid taxes due to a discharge of Indebtedness in 2008 that hubby didn't report as a taxable income(because he didn't know that he had to report it plus no form 1099c was forwarded to him from the bank). Now, I research about it and found out that the amout discharged can be claimed by him as an exclusion because we were insolvent then. We tried to fill out form 982, checked Part I 1b and filled the amount on Line 2 and PartII 10a. Now our main concern is, we tried our best to recall the the amount he owned and owed then to determine his insolvency status(thru the insolvency worksheet). But, since we only got the notice now, we are having hard time determining the EXACT figures, we were only able to come up with ESTIMATES of the FMV of the assets he owned and liabilities he owed. We called up IRS and asked about our concern about supporting documentation of the figure we put in the insolvency worksheet and they told us that it has to be the exact amount and the value of assets we owned, like for cars value on kbb maybe used, etc... Now, my hubby is apprehensive and actually wanted to just write a check to the IRS to just get this over with. I am a little hopefull that somehow he could still use the exclusion from gross income in order for it to be treated as a nontaxable income. My only concern is providing the supporting documentation on the amounts we came up with at the insolvency worksheet...

Would it be a good idea to just go for it and just use estimates, or should I just let my husband pay for it?

Any input would be greatly appreciated! thanks in advance..Discharge of Indebtedness Supporting documents?
Oh boy, if you waited until you got the CP501 letter, your husband ignored the CP2000. That means the tax bill has already been assessed. Unless and until he files an amended return with the form 982--and the IRS accepts it--he is expected to pay the tax. if he sets up a payment plan, the $105 setup fee is not refundable.



As for form 982, it's not required unless you truly believe he was insolvent. Yes, the figures need to be as accurate as you can make them. The IRS knows after 3 years you will forget a few things.



BTW, you need to include the insolvency worksheet *and* the worksheet for what you wrote down on line 10A. 10A, after all, affects your gain when you shed assets in the future. For example, if you own a home, the part of the house you write down *will* be added back to income when sold even if you otherwise qualify for the sale of home exclusion. You cannot pick and choose which assets you write down. The instructions will say not to send the insolvency worksheet, but the service center will send a letter back asking for it.Discharge of Indebtedness Supporting documents?
Your choices are going back and doing what he should have done of rolling over and writing a check. Your estimate of fair market value may be different from the banks. If he was sent an IRS Form CP-2000 and he doesn't have it, he can request a copy. Find a local tax practitioner and get professional help. As a reasonable shot at the FMV of what sounds like a vehicle, I would say that the current FMV of a similiar model that is three years newer (now) than the one your husband had reasonably reflects the FMV of what he lost. The bank may have used trade in value where you should use private party sale value.