Get a 1099-A or a 1099-C form for Cancellation of Debt?

I just got off the phone with a potential client who owes $26,000 from tax year 2003, due to a short sale of a property he and another partner had.

Most people forget to report this income on their tax return. It is usually issued with the form 1099-C or 1099-A. If you lose your house to foreclosure you also get this form - to reflect the debt that you no longer had to pay. People learn that they OWE the government when the IRS audits their return.

The thing that this client did NOT KNOW is:

THIS INCOME IS USUALLY NOT TAXABLE.

My staff is going to amend his return as Cancellation of debt is NOT taxable when the taxpayer is INSOLVENT or whose liabilities exceed their assets when they receive the cancellation of debt." MOST PEOPLE WHO LOSE HOUSES OR HAVE TO DO SHORT SELLS ARE ON THE VERGE OF BANKRUPTCY USUALLY! So in other words, this client had been paying this back tax UNKNOWING that he really shouldn't owe this debt. WE WILL AMEND THE RETURN QUICKLY. These are my favorite cases and I get the happiest clients from fixing these situations.

*CONGRESS SMARTENED UP AND ELIMINATED THE TAXABILITY OF CANCELLATION OF DEBT ON RETURNS 2008 AND ONWARD...DUE TO THE FORECLOSURE CRISIS. Link here: http://www.govtrack.us/congress/bill.xpd?bill=h110-3648

Did you receive a 1099A or 1099C ? Don't know what to do? Give me a call at my desk at 1-866-525-7302 and I will discuss your options. Jay