1099-A'S

[joans]

I have a TP that owns a Sched C business. Not doing well. Finance company took back some of the equipment. Just gave 1099-A, no 1099-C. Here is my question - I record the loss of equipment as a disposition on the Assets with a selling price of 0? I have the FMV and Balance due on each item, but no money was exchanged. The finance company keeps calling and telling the TP that they owe less & less. My thinking is when the Finance company sells the equipment, they should be applying that money towards the TP bill. Is there any capital gain that needs to be recorded? - I say no. I am thinking that no gain is recorded until the TP receives a 1099-C for cancellation of Debt. That is when the income is recorded and then they get hit with the taxes. Am I clear on this or making no sense whatsoever. Any help would be appreciated or if more information is needed I will try to clarify. Very confusing. Thanks

Sara

[lbbwest]

I have a TP that owns a Sched C business. Not doing well. Finance company took back some of the equipment. Just gave 1099-A, no 1099-C. Here is my question - I record the loss of equipment as a disposition on the Assets with a selling price of 0? I have the FMV and Balance due on each item, but no money was exchanged. The finance company keeps calling and telling the TP that they owe less & less. My thinking is when the Finance company sells the equipment, they should be applying that money towards the TP bill. Is there any capital gain that needs to be recorded? - I say no. I am thinking that no gain is recorded until the TP receives a 1099-C for cancellation of Debt. That is when the income is recorded and then they get hit with the taxes. Am I clear on this or making no sense whatsoever. Any help would be appreciated or if more information is needed I will try to clarify. Very confusing. Thanks

Sara

WHOA, Warning Will Robinson Warning. 1099s of all kinds are simply information that is reported by a third party directly to the IRS. It May or MAY NOT reflect reality. This is a very precise question you are asking and the nature of this website doesn't avail you an exact and precise answer. #1 you have to take the purchase price of the equipment less the depreciation to find the basis. The "selling price" of the equipment is the redemption of the debt. The difference is cap gain or loss. FMV has NOTHING TO DO WITH IT. The Finance company may be offering a "settlement" which is why it is less and less. There are some precise rules regarding insolvency and taxable income on. I suggest you go to the IRS website and START your search regarding 1099-A. THEN when you have familiarized yourself with the process have your tp contact the finance company to clarify what is going on. Good luck! lobb

[JohnH]

I certainly wouldn't want to be trying to sort out a situation like this under deadline pressure, especially since all the facts aren't yet established. This is a prime candidate for an extension, with plenty of warnings to the client that even the best estimate of tax liability could be way off base at this point.

[joans]

I do have the purchase prices of the equipment and total depreciation. They do have outstanding loans on the equipment which is also on the 1099-A. But I need the TP to find out from the finance company what is going on with the equipment, correct? I will be filing an extension for this one. The TP is very upset with FC because they basically had some of the equipment sold even before they picked it up from their business. Very questionable ethics on their part. Came in one day and picked everything up - no warning supposedly. I will investigate more, but appreciate all words of wisdom.

Sara

[David1980]

Publication 4681 table 1-1.

Table 1-1. Worksheet for Foreclosures and Repossessions

Part 1. Figure your ordinary income from the cancellation of debt upon foreclosure or repossession. Complete this part only if you were personally liable for the debt. Otherwise, go to Part 2.

1. Enter the amount of outstanding debt immediately before the transfer of property reduced by any amount for which you remain personally liable immediately after the transfer of property

2. Enter the fair market value of the transferred property

3. Ordinary income from the cancellation of debt upon foreclosure or repossession.* Subtract line 2 from line 1. If less than zero, enter zero. Next, go to Part 2

Part 2. Figure your gain or loss from foreclosure or repossession.

4. If you completed Part 1, enter the smaller of line 1 or line 2. If you did not complete Part 1, enter the amount of outstanding debt immediately before the transfer of property

5. Enter any proceeds you received from the foreclosure sale

6. Add line 4 and line 5

7. Enter the adjusted basis of the transferred property

8. Gain or loss from foreclosure or repossession. Subtract line 7 from line 6

* The income may not be taxable. See Chapter 1, Canceled Debts, for more details.

Amount realized on a nonrecourse debt. If you are not personally liable for repaying the debt secured by the transferred property, the amount you realize includes the full amount of the outstanding debt immediately before the transfer. This is true even if the FMV of the property is less than the outstanding debt immediately before the transfer.

[joans]

Thanks David - Printed off Pub to do calculations. This is a messy situation.

Sara