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Question about forgiven Debt and the IRS Please read the whole thing?

My Husband and I had a vehicle reposession a few yrs ago after I lost my job. We made a settlement agreement and paid it a few months ago. We got letters from the Auto Loan company stating this: "Enclosed you will find an Internal Revenue Service Form 1099-C. A copy of the form has also been provided to the IRS. The amount reflected in the form is the amount of unpaid principal on your GM Financial account that is deemed uncollectible, either because we've discontinued significnt collection activity on the account under IRS definitions or because we've entered into a settlement agreement with you. We are sending this form as a requirement of IRS regulations. The unpaid principal, once it is deemed uncollectible, is considered income to you by the IRS pursuant to the regulations. Sincerely, GM Finanacial" I have a few questions about this. One, My Husband already filed his taxes (We just got these letters today) so what do we do now? Secondly, I did not work this year, does this mean I have to go file taxes now? And Third, Why is forgiven debt considered income? Do we get money back or something? Im confused. If it matters, the amount of the principal that has been forgiven is $10,000 and We paid $10,000.00 for the settlement agreement.

Asked By: - 1/31/2013
Best Answer - Chosen by Asker
You should have filed jointly, which is usually more beneficial than filing separately. You can do that by filing an amended return, which you should do anyway due to the 1099-C. However, you may not have to pay any tax on it. If you can show you were considered insolvent (meaning that your debts exceeded your assets... More
Answered By: John Scott - 1/31/2013
Additional Answers (3)
Then you and your husband will file a joint 1040X, an amended tax return The IRS has determined that forgiven debt is in fact income since you did not pay the amount owed. You have no basis to appeal that IRS ruling
Answered By: Ariaread - 1/31/2013
 
They consider the forgiven debt income because it is basically money that was given to you- they forgave half of your debt ($10,000). You will owe taxes on that amount... More
Answered By: StayAtHomeMomOnTheGo - 1/31/2013
 
>My Husband already filed his taxes (We just got these letters today) so what do we do now... More
Answered By: Vinncent - 1/31/2013
 
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