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Reggie1961 02/05/2015

I have a few questions.

My son -- and his wife who is filing for divorce -- each got a Form 1099-C in the mail and both came here to my house. This form is for Cancellation of Debt, because of the house they foreclosed on, which was sold at a Sheriff's Sale for less than it was worth.

I called my son's lawyer to see if he knew what happens with paying taxes when someone's in prison. He said since my son was in custody since last February he wouldn't have made enough money to worry about so he wouldn't have to file. He was still (at that time) getting I think around $750 in VA benefits each month.

Questions #1 -- would that be true that he wouldn't have to file, and would this Form 1099-C affect that?

The lawyer also said it would benefit my son's wife to file married-filing jointly to get the most deductions. I sent her a message to tell her this and she said she already filed and couldn't file jointly because he's been out of the home for more than 6 months.

Question #2 -- Is she right that she can't file jointly? And if that's not true, can she re-file? Once she gets this form that I'm sending her, will she have to re-file anyway, or at least contact them about it?

Any help on this would be appreciated. THANKS!

october2014 02/05/2015

You may want to double check on that 1099. There's one that translates a foreclosure cancellation of debt into income and there's one that wipes the debt away. I had a foreclosure a few years ago, but I don't remember which is which -- I hope the one you've got is the one that lets your son off the hook.

ThoughtAsWeak 02/05/2015

She can still file jointly. I still do, even with hubby still in prison.

Reggie1961 02/05/2015

I told her these things just now and she just repeated "well, my taxes are filed already and approved." I guess if she's not even going to try to talk to someone about it, maybe she'll find out the hard way about the 1099 deal, although it does say "cancellation of debt."

BrainInterrupted 02/05/2015

She can amend her taxes for at least three years after they were filed. The 1099-C goes to the IRS. If her return doesn't match well with the 1099-C, the IRS can (and probably will) send a letter to her. She can also file jointly - but this sounds like she refuses to do so.

The amended tax return is called a 1040-X. I know, because I used to prepare taxes years ago and I have amended my own.

EchoMoon 02/05/2015

in all honesty, i would talk to someone who is knowledgeable about taxes, not a lawyer. not unless he is a "tax lawyer"!!!

aladdin4d 02/06/2015

If the 1099-C is debt left after a foreclosure it can probably be excluded via the Mortgage Forgiveness Debt Relief Act but in order to do that somebody has to file and claim the exclusion even if they aren't required to file for other reasons.

Filing as married filing jointly might make a difference and can be done no matter how long he's actually been out of the home. Until the divorce is final they are still married and can file jointly.

No matter what else happens she needs to re-file including the 1099-C and the form required to claim the exclusion otherwise the IRS will start hounding her.

Reggie1961 02/06/2015

Echo -- his lawyer told me he used to do people's taxes. Aladdin -- I agree, but I've tried twice and she doesn't want to even discuss it. Things are pretty touchy anyway because of her attitude toward him and because I'v supported him. So she's just going to have to find out the hard way. She's never been one to take any kind of good advice -- part of why they ended up heavily in debt to begin with. Thanks, everyone, for your advice, though.

BrainInterrupted 02/07/2015

Reggie - sad that she will have to find out the hard way. I saw a lot of this behavior when I did taxes for a small CPA firm when we had clients going through divorce proceedings, regardless of the reason(s). It may take a year for the IRS to catch up. Sadly, my guess is that she will blame others for being in the situation she is in, because of "it's his fault everything went wrong".

Reggie1961 02/07/2015

Brain -- yeah, that sounds exactly like what she'll do!

oncefallendotcom 02/10/2015

Only thing I know about taxes is that it is the only other dependable thing besides death.

Advocate2 02/11/2015

Yeah the filing jointly is based on the time they were legally married not whether they were living together - they will send a copy of the 1099 C to IRS and yes it will take a little while to catch up to it but they will get they will question it

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