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  1. #1
    Join Date
    Jan 2012
    Posts
    3

    Default Filing Taxes When Bankruptcy Discharge Falls in a Second Tax Year

    Filed bankruptcy Feb 2011, discharged May 2011; case was closed in Jan 2012. Per my bankruptcy attorney, I should file my taxes (report the bankruptcy only after it closes). So for 2011 tax year, I just did my usual return (W2, 1099s, 1098).

    Facts about bankruptcy:
    > discharged following debts: unsecured cc, mortgage on home and mortgage on rental property. (property under water)

    I have learned:

    > For 2011 tax return: I should have reported COD income for the discharged cc debt and the "forgiven" amount on the mortgages; backed out on form 982 and excluded from gross income
    > For 2012 tax return: I will need to report the "reduction of tax attributes" for the rental property

    I have learned all of this on my own. I brought this year's return documents told my cpa about the 2011 bankruptcy (closed 2012). All she did was prepare my 2012 return, reporting BOTH the COD income and reduction of attributes. She made no mention that I needed to report the COD income/exclusion for the 2011 return.

    Here's my question: What do I need to do since I failed to report the COD income/exclusion for the 2011 return? Will the IRS fine or penalize me? I read IRS pub 908 and it states:

    "debtor does not file a tax return that becomes due after the commencement of the bankruptcy case, or obtain an extension for filing the return before the due date, the taxing authority may request that the bankruptcy court either dismiss the case or convert the case to a case under another chapter of the Bankruptcy Code."

    I angry that my bk attorney advise me incorrectly, to report/file the discharge on after the case was closed. I'm upset my cpa did not catch that I should have reported the discharge for 2011.

    What can I do? Do I need to do an amended return for 2011 or can I report both in 2012? Will probably need to hire a new cpa.

    NOTE - Per IRS regulations the bankruptcy trustee must complete the estate tax and report 1041. In practice, I have learned this do NOT happen as it is a "zero-asset case." So ultimately it is the taxpayers responsibility.

  2. #2
    Join Date
    Oct 2006
    Posts
    16,379

    Default Re: Discharged/Closed Bankruptcy - Between Two Calendar Years.

    Quote Quoting Bigwizard
    View Post
    Filed bankruptcy Feb 2011, discharged May 2011; case was closed in Jan 2012. Per my bankruptcy attorney, I should file my taxes (report the bankruptcy only after it closes). So for 2011 tax year, I just did my usual return (W2, 1099s, 1098).

    Facts about bankruptcy:
    > discharged following debts: unsecured cc, mortgage on home and mortgage on rental property. (property under water)

    I have learned:

    > For 2011 tax return: I should have reported COD income for the discharged cc debt and the "forgiven" amount on the mortgages; backed out on form 982 and excluded from gross income
    > For 2012 tax return: I will need to report the "reduction of tax attributes" for the rental property

    I have learned all of this on my own. I brought this year's return documents told my cpa about the 2011 bankruptcy (closed 2012). All she did was prepare my 2012 return, reporting BOTH the COD income and reduction of attributes. She made no mention that I needed to report the COD income/exclusion for the 2011 return.

    Here's my question: What do I need to do since I failed to report the COD income/exclusion for the 2011 return? Will the IRS fine or penalize me? I read IRS pub 908 and it states:

    "debtor does not file a tax return that becomes due after the commencement of the bankruptcy case, or obtain an extension for filing the return before the due date, the taxing authority may request that the bankruptcy court either dismiss the case or convert the case to a case under another chapter of the Bankruptcy Code."

    I angry that my bk attorney advise me incorrectly, to report/file the discharge on after the case was closed. I'm upset my cpa did not catch that I should have reported the discharge for 2011.

    What can I do? Do I need to do an amended return for 2011 or can I report both in 2012? Will probably need to hire a new cpa.

    NOTE - Per IRS regulations the bankruptcy trustee must complete the estate tax and report 1041. In practice, I have learned this do NOT happen as it is a "zero-asset case." So ultimately it is the taxpayers responsibility.
    If the 1099-C was issued for 2012, then that is where its reported.

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