Taxpayer's who receive Form 1099-C or 1099-A may be eligible to exclude their debt from income if they are considered insolvent by IRS standards.
What is Insolvency?
A taxpayer is considered insolvent if their total debts/liabilities exceed their total assets.
How to Determine if a Taxpayer is Insolvent
To calculate whether a taxpayer is insolvent, have them complete an Insolvency Worksheet. A separate Insolvency Worksheet should be completed for each debt the taxpayer is wishing to exclude on Form 982. Form 982 should be completed with information the day prior to the cancellation of debt or other charge off.
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