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File 2009 taxes online for free Publication 908 - Main Content Table of Contents Bankruptcy Code Tax Compliance RequirementsTax Returns Due for Periods Ending Before the Bankruptcy Filing in Chapter 13 Cases Tax Returns Due After the Bankruptcy Filing Individuals in Chapter 12 or 13 Individuals in Chapter 7 or 11Debtor's Election To End Tax Year – Form 1040 Taxes and the Bankruptcy Estate Bankruptcy Estate – Income, Deductions, and Credits Tax Reporting – Chapter 11 Cases Bankruptcy Estate Tax Return Filing Requirements and Payment of Tax Due Tax Return Example – Form 1041 Partnerships and CorporationsFiling Requirements Partnerships Corporations Receiverships Determination of TaxPrompt Determination Requests Court Jurisdiction Over Tax MattersBankruptcy Court Tax Court Federal Tax ClaimsUnsecured Tax Claims Discharge of Unpaid Tax Debt CancellationExclusions Reduction of Tax Attributes Partnerships Corporations Tax Attribute Reduction Example How To Get Tax HelpTaxpayer Advocacy Panel (TAP). File 2009 taxes online for free Low Income Taxpayer Clinics (LITCs). File 2009 taxes online for free Bankruptcy Code Tax Compliance Requirements Tax Returns Due for Periods Ending Before the Bankruptcy Filing in Chapter 13 Cases The Bankruptcy Code requires chapter 13 debtors to file all required tax returns for tax periods ending within 4 years of the debtor's bankruptcy filing. File 2009 taxes online for free All such federal tax returns must be filed with the IRS before the date first set for the first meeting of creditors. File 2009 taxes online for free The debtor may request the trustee to hold the meeting open for an additional 120 days to enable the debtor to file the returns (or until the day the returns are due under an automatic IRS extension, if later). File 2009 taxes online for free After notice and hearing, the bankruptcy court may extend the period for another 30 days. File 2009 taxes online for free Failure to timely file the returns can prevent confirmation of a chapter 13 plan and result in either dismissal of the chapter 13 case or conversion to a chapter 7 case. File 2009 taxes online for free Note. File 2009 taxes online for free Individual debtors should use their home address when filing Form 1040 with the IRS. File 2009 taxes online for free Returns should not be filed “in care of” the trustee's address. File 2009 taxes online for free Ordering tax transcripts and copies of returns. File 2009 taxes online for free   Trustees may require the debtor to submit copies or transcripts of the debtor's returns as proof of filing. File 2009 taxes online for free The debtor can request free transcripts of the debtor's income tax returns by filing Form 4506-T, Request for Transcript of Tax Return, with the IRS or by placing a request on the IRS's free Automated Delivery Service (ADS), available by calling 1-800-829-1040. File 2009 taxes online for free If requested through ADS, the transcript will be mailed to the debtor's most current address according to the IRS's records. File 2009 taxes online for free Transcripts requested using Form 4506-T may be mailed to any address, including to the attention of the trustee in the debtor's bankruptcy case. File 2009 taxes online for free Transcripts are normally mailed within 10 to 15 days of receipt of the request by the IRS. File 2009 taxes online for free A transcript contains most of the information on the debtor's filed return, but it is not a copy of the return. File 2009 taxes online for free To request a copy of the debtor's filed return, file Form 4506, Request for Copy of Tax Return. File 2009 taxes online for free It may take up to 60 days for the IRS to provide the copies after receipt of the debtor's request, and there is a fee of $57. File 2009 taxes online for free 00 per tax return for copies of the returns. File 2009 taxes online for free Tax Returns Due After the Bankruptcy Filing For debtors filing bankruptcy under all chapters (chapters 7, 11, 12, or 13), the Bankruptcy Code provides that if the debtor does not file a tax return that becomes due after the commencement of the bankruptcy case, or obtain an extension for filing the return before the due date, the taxing authority may request that the bankruptcy court either dismiss the case or convert the case to a case under another chapter of the Bankruptcy Code. File 2009 taxes online for free If the debtor does not file the required return or obtain an extension within 90 days after the request is made, the bankruptcy court must dismiss or convert the case. File 2009 taxes online for free Tax returns and payment of taxes in chapter 11 cases. File 2009 taxes online for free   The Bankruptcy Code provides that a chapter 11 debtor's failure to timely file tax returns and pay taxes owed after the date of the “order for relief” (the bankruptcy petition date in voluntary cases) is cause for dismissal of the chapter 11 case, conversion to a chapter 7 case, or appointment of a chapter 11 trustee. File 2009 taxes online for free Disclosure of debtor's return information to trustee. File 2009 taxes online for free   In bankruptcy cases filed under chapter 7 or 11 by individuals, the debtor's income tax returns for the year the bankruptcy case begins and for earlier years are, upon written request, open to inspection by or disclosure to the trustee. File 2009 taxes online for free If the bankruptcy case was not voluntary, disclosure cannot be made before the bankruptcy court has entered an order for relief, unless the court rules that the disclosure is needed for determining whether relief should be ordered. File 2009 taxes online for free    In bankruptcy cases other than those of individuals filing under chapter 7 or 11, the debtor's income tax returns for the current and prior years are, upon written request, open to inspection by or disclosure to the trustee, but only if the IRS finds that the trustee has a material interest that will be affected by information on the return. File 2009 taxes online for free Material interest is generally defined as a financial or monetary interest. File 2009 taxes online for free Material interest is not limited to the trustee's responsibility to file a return on behalf of the bankruptcy estate. File 2009 taxes online for free   However, the U. File 2009 taxes online for free S. File 2009 taxes online for free Trustee (an officer of the Department of Justice, responsible for maintaining and supervising a panel of private trustees for chapter 7 bankruptcy cases) and the standing chapter 13 trustee (the administrator of chapter 13 cases in a specific geographic region) generally do not have a material interest in the debtor’s return or return information. File 2009 taxes online for free Disclosure of bankruptcy estate's return information to debtor. File 2009 taxes online for free    The bankruptcy estate's tax return(s) are open, upon written request, to inspection by or disclosure to the individual debtor in a chapter 7 or 11 bankruptcy. File 2009 taxes online for free Disclosure of the estate's return to the debtor may be necessary to enable the debtor to determine the amount and nature of the tax attributes, if any, that the debtor assumes when the bankruptcy estate terminates. File 2009 taxes online for free Individuals in Chapter 12 or 13 Only individuals may file a chapter 13 bankruptcy. File 2009 taxes online for free Chapter 13 relief is not available to corporations or partnerships. File 2009 taxes online for free The bankruptcy estate is not treated as a separate entity for tax purposes when an individual files a petition under chapter 12 (Adjustment of Debts of a Family Farmer or Fisherman with Regular Annual Income) or 13 (Adjustment of Debts of an Individual with Regular Income) of the Bankruptcy Code. File 2009 taxes online for free In these cases the individual continues to file the same federal income tax returns that were filed prior to the bankruptcy petition, Form 1040, U. File 2009 taxes online for free S. File 2009 taxes online for free Individual Income Tax Return. File 2009 taxes online for free On the debtor's individual tax return, Form 1040, report all income received during the entire year and deduct all allowable expenses. File 2009 taxes online for free Do not include in income the amount from any debt canceled due to the debtor's bankruptcy. File 2009 taxes online for free To the extent the debtor has any losses, credits, or basis in property that were previously reduced as a result of canceled debt, these reductions must be included on the debtor's return. File 2009 taxes online for free See Debt Cancellation, later. File 2009 taxes online for free Interest on trust accounts in chapter 13 cases. File 2009 taxes online for free   In chapter 13 proceedings, do not include interest earned on amounts held by the trustee in trust accounts as income on the debtor's return. File 2009 taxes online for free This interest is not available to either the debtor or creditors, it is available only to the trustee for use by the U. File 2009 taxes online for free S. File 2009 taxes online for free Trustee system. File 2009 taxes online for free The interest is also not taxable to the trustee as income. File 2009 taxes online for free Individuals in Chapter 7 or 11 When an individual debtor files for bankruptcy under chapter 7 or 11 of the Bankruptcy Code, the bankruptcy estate is treated as a new taxable entity, separate from the individual taxpayer. File 2009 taxes online for free The bankruptcy estate in a chapter 7 case is represented by a trustee. File 2009 taxes online for free The trustee is appointed to administer the estate and liquidate any nonexempt assets. File 2009 taxes online for free In chapter 11 cases, the debtor often remains in control of the assets as a “debtor-in-possession” and acts as the bankruptcy trustee. File 2009 taxes online for free However, the bankruptcy court, for cause, may appoint a trustee if such appointment is in the best interests of the creditors and the estate. File 2009 taxes online for free During the chapter 7 or 11 bankruptcy, the debtor continues to file an individual tax return on Form 1040. File 2009 taxes online for free The bankruptcy trustee files a Form 1041 for the bankruptcy estate. File 2009 taxes online for free However, when a debtor in a chapter 11 bankruptcy case remains a debtor-in-possession, he or she must file both a Form 1040 individual return and a Form 1041 estate return for the bankruptcy estate (if return filing requirements are met). File 2009 taxes online for free Although a husband and wife may file a joint bankruptcy petition whose bankruptcy estates are jointly administered, the estates are be treated as two separate entities for tax purposes. File 2009 taxes online for free Two separate bankruptcy estate income tax returns must be filed (if each spouse separately meets the filing requirements). File 2009 taxes online for free For information about determining the tax due and paying tax for a chapter 7 or 11 bankruptcy estate, see Bankruptcy Estate Tax Return Filing Requirements and Payment of Tax Due, later. File 2009 taxes online for free Debtor's Election To End Tax Year – Form 1040 Short tax years. File 2009 taxes online for free   An individual debtor in a chapter 7 or 11 case may elect to close the debtor's tax year for the year in which the bankruptcy petition is filed, as of the day before the date on which the bankruptcy case commences. File 2009 taxes online for free If the debtor makes this election, the debtor's tax year is divided into 2 short tax years of less than 12 months each. File 2009 taxes online for free The first tax year ends on the day before the commencement date and the second tax year begins on the commencement date. File 2009 taxes online for free   If the election is made, the debtor's federal income tax liability for the first short tax year becomes an allowable claim against the bankruptcy estate arising before the bankruptcy filing. File 2009 taxes online for free Also, the tax liability for the first short tax year is not subject to discharge under the Bankruptcy Code. File 2009 taxes online for free    If the debtor does not make an election to end the tax year, the commencement of the bankruptcy case does not affect the debtor's tax year. File 2009 taxes online for free Also, no part of the debtor's income tax liability for the year in which the bankruptcy case commences can be collected from the bankruptcy estate. File 2009 taxes online for free Note. File 2009 taxes online for free The debtor cannot make a short tax year election if no assets, other than exempt property, are in the bankruptcy estate. File 2009 taxes online for free Making the Election - Filing Requirements First short tax year. File 2009 taxes online for free   The debtor can elect to end the debtor's tax year by filing a return on Form 1040 for the first short tax year. File 2009 taxes online for free The return must be filed on or before the 15th day of the fourth full month after the end of that first tax year. File 2009 taxes online for free Second short tax year. File 2009 taxes online for free   If the debtor elects to end the tax year on the day before filing the bankruptcy case, the debtor must file the return for the first short tax year in the manner discussed above. File 2009 taxes online for free   If the debtor makes this election, the debtor must also file a separate Form 1040 for the second short tax year by the regular due date. File 2009 taxes online for free To avoid delays in processing the return, write “Second Short Year Return After Section 1398 Election” at the top of the return. File 2009 taxes online for free Example. File 2009 taxes online for free Jane Doe, an individual calendar year taxpayer, filed a bankruptcy petition under chapter 7 or 11 on May 8, 2012. File 2009 taxes online for free If Jane elected to close her tax year at the commencement of her case, Jane's first short year for 2012 runs from January 1 through May 7, 2012. File 2009 taxes online for free Jane's second short year runs from May 8, 2012, through December 31, 2012. File 2009 taxes online for free To have a timely filed election for the first short year, Jane must file Form 1040 (or an extension of time to file) for the period January 1 through May 7 by September 15. File 2009 taxes online for free To avoid delays in processing the return, write “Section 1398 Election” at the top of the return. File 2009 taxes online for free The debtor may also make the election by attaching a statement to Form 4868, Automatic Extension of Time to File an U. File 2009 taxes online for free S. File 2009 taxes online for free Individual Tax Return. File 2009 taxes online for free The statement must state that the debtor elects under IRC section 1398(d)(2) to close the debtor's tax year on the day before filing the bankruptcy case. File 2009 taxes online for free The debtor must file Form 4868 by the due date of the return for the first short tax year. File 2009 taxes online for free The debtor's spouse may also elect to close his or her tax year, see Election by debtor's spouse, below. File 2009 taxes online for free Election by debtor's spouse. File 2009 taxes online for free   If the debtor is married, the debtor's spouse may join in the election to end the tax year. File 2009 taxes online for free If the debtor and spouse make a joint election, the debtor must file a joint return for the first short tax year. File 2009 taxes online for free The debtor must elect by the due date for filing the return for the first short tax year. File 2009 taxes online for free Once the election is made, it cannot be revoked for the first short tax year. File 2009 taxes online for free However, the election does not prevent the debtor and the spouse from filing separate returns for the second short tax year. File 2009 taxes online for free Later bankruptcy of spouse. File 2009 taxes online for free    If the debtor's spouse files for bankruptcy later in the same year, he or she may also choose to end his or her tax year, regardless of whether he or she joined in the election to end the debtor's tax year. File 2009 taxes online for free   As each spouse has a separate bankruptcy, one or both of them may have 3 short tax years in the same calendar year. File 2009 taxes online for free If the debtor's spouse joined the debtor's election or if the debtor had not made the election to end the tax year, the debtor can join in the spouse's election. File 2009 taxes online for free However, if the debtor made an election and the spouse did not join that election, the debtor cannot then join the spouse's later election. File 2009 taxes online for free The debtor and the spouse are precluded from this election because they have different tax years. File 2009 taxes online for free This results because the debtor does not have a tax year ending the day before the spouse's filing for bankruptcy, and the debtor cannot file a joint return for a year ending on the day before the spouse's filing of bankruptcy. File 2009 taxes online for free Example 1. File 2009 taxes online for free Paul and Mary Harris are calendar-year taxpayers. File 2009 taxes online for free Paul's voluntary chapter 7 bankruptcy case begins on March 4. File 2009 taxes online for free If Paul does not make an election, his tax year does not end on March 3. File 2009 taxes online for free If he makes an election, Paul's first tax year is January 1–March 3, and his second tax year begins on March 4. File 2009 taxes online for free Mary could join in Paul's election as long as they file a joint return for the tax year January 1–March 3. File 2009 taxes online for free They must make the election by July 15, the due date for filing the joint return. File 2009 taxes online for free Example 2. File 2009 taxes online for free Fred and Ethel Barnes are calendar-year taxpayers. File 2009 taxes online for free Fred's voluntary chapter 7 bankruptcy case begins on May 6, and Ethel's bankruptcy case begins on November 1 of the same year. File 2009 taxes online for free Ethel could elect to end her tax year on October 31. File 2009 taxes online for free If Fred did not elect to end his tax year on May 5, or if he elected to do so but Ethel had not joined in his election, Ethel would have 2 tax years in the same calendar year if she decided to close her tax year. File 2009 taxes online for free Her first tax year is January 1–October 31, and her second year is November 1–December 31. File 2009 taxes online for free If Fred did not end his tax year as of May 5, he could join in Ethel's election to close her tax year on October 31, but only if they file a joint return for the tax year January 1–October 31. File 2009 taxes online for free If Fred elected to end his tax year on May 5, but Ethel did not join in Fred's election, Fred cannot join in Ethel's election to end her tax year on October 31. File 2009 taxes online for free Fred and Ethel cannot file a joint return for that short tax year because their tax years preceding October 31 were not the same. File 2009 taxes online for free Example 3. File 2009 taxes online for free Jack and Karen Thomas are calendar-year taxpayers. File 2009 taxes online for free Karen's voluntary chapter 7 bankruptcy case began on April 10, and Jack's voluntary chapter 7 bankruptcy case began on October 3 of the same year. File 2009 taxes online for free Karen elected to close her tax year on April 9 and Jack joins in Karen's election. File 2009 taxes online for free Under these facts, Jack would have 3 tax years for the same calendar year if he makes the election relating to his own bankruptcy case. File 2009 taxes online for free The first tax year would be January 1–April 9; the second, April 10–October 2; and the third, October 3–December 31. File 2009 taxes online for free Karen may join in Jack's election if they file a joint return for the second short tax year (April 10–October 2). File 2009 taxes online for free If Karen does join in, she would have the same 3 short tax years as Jack. File 2009 taxes online for free Also, if Karen joins in Jack's election, they may file a joint return for the third tax year (October 3–December 31), but they are not required to do so. File 2009 taxes online for free Annualizing taxable income. File 2009 taxes online for free   If the debtor elects to close the tax year, the debtor must annualize taxable income for each short tax year in the same manner a change in annual accounting period is calculated. File 2009 taxes online for free See Short Tax Year in Publication 538, for information on how to annualize the debtor's income and to figure the tax for the short tax year. File 2009 taxes online for free Dismissal of bankruptcy case. File 2009 taxes online for free   If the bankruptcy court later dismisses an individual chapter 7 or 11 case, the bankruptcy estate is no longer treated as a separate taxable entity. File 2009 taxes online for free It is as if no bankruptcy estate was created for tax purposes. File 2009 taxes online for free In this situation, the debtor must file amended tax returns on Form 1040X, to replace all full or short year individual returns (Form 1040) and bankruptcy estate returns (Form 1041) filed as a result of the bankruptcy case. File 2009 taxes online for free Income, deductions, and credits previously reported by the bankruptcy estate must be reported on the debtor's amended returns. File 2009 taxes online for free Attach a statement to the amended returns explaining why the debtor is filing an amended return. File 2009 taxes online for free Taxes and the Bankruptcy Estate Property of the bankruptcy estate. File 2009 taxes online for free   At the commencement of a bankruptcy case a bankruptcy estate is created. File 2009 taxes online for free Bankruptcy law determines which of the debtor's assets become part of a bankruptcy estate. File 2009 taxes online for free This estate generally includes all of the debtor's legal and equitable interests in property as of the commencement date. File 2009 taxes online for free However, there are exceptions and certain property is exempted or excluded from the bankruptcy estate. File 2009 taxes online for free Note. File 2009 taxes online for free Exempt property and abandoned property are initially part of the bankruptcy estate, but are subsequently removed from the estate. File 2009 taxes online for free Excluded property is never included in the estate. File 2009 taxes online for free Transfer of assets between debtor and bankruptcy estate. File 2009 taxes online for free   The transfer (other than by sale or exchange) of an asset from the debtor to the bankruptcy estate is not treated as a disposition for income tax purposes. File 2009 taxes online for free The transfer does not result in gain or loss, acceleration of income or deductions, or recapture of deductions or credits. File 2009 taxes online for free For example, the transfer of an installment obligation to the estate would not accelerate gain under the rules for reporting installment sales. File 2009 taxes online for free The estate assumes the same basis, holding period, and character of the transferred assets. File 2009 taxes online for free Also, the estate generally accounts for the transferred assets in the same manner as debtor. File 2009 taxes online for free   When the bankruptcy estate is terminated or dissolved, any resulting transfer (other than by sale or exchange) of the estate's assets back to the debtor is also not treated as a disposition for tax purposes. File 2009 taxes online for free The transfer does not result in gain or loss, acceleration of income or deductions, or recapture of deductions or credits to the estate. File 2009 taxes online for free Abandoned property. File 2009 taxes online for free    The abandonment of property by the estate to the debtor is a nontaxable disposition of property. File 2009 taxes online for free If the debtor received abandoned property from the bankruptcy estate, the debtor assumes the same basis in the property that the bankruptcy estate had. File 2009 taxes online for free Separate taxable entity. File 2009 taxes online for free   When an individual files a bankruptcy petition under chapter 7 or 11, the bankruptcy estate is treated as a separate taxable entity from the debtor. File 2009 taxes online for free The court appointed trustee or the debtor-in-possession is responsible for preparing and filing all of the bankruptcy estate's tax returns, including its income tax return on Form 1041, U. File 2009 taxes online for free S. File 2009 taxes online for free Income Tax Return for Estates and Trusts, and paying its taxes. File 2009 taxes online for free The debtor remains responsible for filing his or her own returns on Form 1040, U. File 2009 taxes online for free S. File 2009 taxes online for free Individual Income Tax Return, and paying taxes on income that does not belong to the estate. File 2009 taxes online for free Employer identification number. File 2009 taxes online for free   The trustee or debtor-in-possession must obtain an EIN for a bankruptcy estate. File 2009 taxes online for free The trustee or debtor-in-possession uses this EIN on all tax returns filed for the bankruptcy estate with the IRS, including estimated tax returns. File 2009 taxes online for free See Employer identification number, under Bankruptcy Estate Tax Return Filing Requirements and Payment of Tax Due, later. File 2009 taxes online for free    The social security number of the individual debtor cannot be used as the EIN for the bankruptcy estate. File 2009 taxes online for free Income, deductions, and credits – Form 1040. File 2009 taxes online for free   In an individual chapter 7 or 11 bankruptcy case, do not include the income, deductions, and credits that belong to the bankruptcy estate on the debtor's individual income tax return (Form 1040). File 2009 taxes online for free Also, do not include as income on the debtor's return the amount of any debt canceled by reason of the bankruptcy discharge. File 2009 taxes online for free The bankruptcy estate must reduce certain losses, credits, and the basis in property (to the extent of these items) by the amount of canceled debt. File 2009 taxes online for free See Debt Cancellation, below. File 2009 taxes online for free Note. File 2009 taxes online for free The debtor may not be able to claim certain deductions available to the bankruptcy estate such as administrative expenses. File 2009 taxes online for free Additionally, the bankruptcy exclusion cannot be used to exclude income from a cancelled debt if the discharge of indebtedness was not within the bankruptcy case, even though the debtor was under the bankruptcy court's protection at the time. File 2009 taxes online for free However, other exclusions, such as the insolvency exclusion, may apply. File 2009 taxes online for free Bankruptcy Estate – Income, Deductions, and Credits Bankruptcy Estate Income Income of the estate in individual chapter 7 cases. File 2009 taxes online for free    The gross income of the bankruptcy estate includes gross income of the debtor to which the estate is entitled under the Bankruptcy Code. File 2009 taxes online for free Gross income also includes income generated by the bankruptcy estate from property of the estate after the commencement of the case. File 2009 taxes online for free   Gross income of the bankruptcy estate does not include amounts received or accrued by the debtor before the commencement of the case. File 2009 taxes online for free Additionally, in chapter 7 cases, gross income of the bankruptcy estate does not include any income that the debtor earns after the date of the bankruptcy petition. File 2009 taxes online for free Income of the estate in individual chapter 11 cases. File 2009 taxes online for free    In chapter 11 cases, under IRC section 1398(e)(1), gross income of the bankruptcy estate includes income that the debtor earns for services performed after the bankruptcy petition date. File 2009 taxes online for free Also, earnings from services performed by an individual debtor after the commencement of the chapter 11 case are property of the bankruptcy estate under section 1115 of the Bankruptcy Code (11 U. File 2009 taxes online for free S. File 2009 taxes online for free C. File 2009 taxes online for free section 1115). File 2009 taxes online for free Note. File 2009 taxes online for free A debtor-in-possession may be compensated by the estate for managing or operating a trade or business that the debtor conducted before the commencement of the bankruptcy case. File 2009 taxes online for free Such payments should be reported by the debtor as miscellaneous income on his or her individual income tax return (Form 1040). File 2009 taxes online for free Amounts paid by the estate to the debtor-in-possession for managing or operating the trade or business may qualify as administrative expenses of the estate. File 2009 taxes online for free See Administrative expenses, below. File 2009 taxes online for free Conversion or dismissal of chapter 11 cases. File 2009 taxes online for free   If a chapter 11 case is converted to a chapter 13 case, the chapter 13 estate is not a separate taxable entity and earnings from post-conversion services and income from property of the estate realized after the conversion to chapter 13 are taxed to the debtor. File 2009 taxes online for free If the chapter 11 case is converted to a chapter 7 case, 11 U. File 2009 taxes online for free S. File 2009 taxes online for free C. File 2009 taxes online for free section 1115 does not apply after conversion and: Earnings from post-conversion services will be taxed to the debtor, rather than the estate, and The property of the chapter 11 estate will become property of the chapter 7 estate. File 2009 taxes online for free Any income on this property will be taxed to the estate even if the income is realized after the conversion to chapter 7. File 2009 taxes online for free If a chapter 11 case is dismissed, the debtor is treated as if the bankruptcy case had never been filed and as if no bankruptcy estate had been created. File 2009 taxes online for free Bankruptcy Estate Deductions and Credits A bankruptcy estate deducts expenses incurred in a trade, business, or activity, and uses credits in the same way the debtor would have deducted or credited them had he or she continued operations. File 2009 taxes online for free Note. File 2009 taxes online for free Expenses may be disallowed under other provisions of the IRC (such as the disallowance of certain capital expenditures or expenses relating to tax-exempt interest). File 2009 taxes online for free Administrative expenses. File 2009 taxes online for free   Allowable expenses include administrative expenses. File 2009 taxes online for free    Administrative expenses can only be deducted by the estate, never by the debtor. File 2009 taxes online for free   The bankruptcy estate is allowed deductions for bankruptcy administrative expenses and fees, including accounting fees, attorney fees, and court costs. File 2009 taxes online for free These expenses are deductible on Form 1040, Schedule A as miscellaneous itemized deductions not subject to the 2% floor on miscellaneous itemized deductions, because they would not have been incurred if property had not been held by the bankruptcy estate. File 2009 taxes online for free See IRC section 67(e). File 2009 taxes online for free Administrative expenses of the bankruptcy estate attributable to conducting a trade or business for the production of estate rents or royalties are deductible in arriving at adjusted gross income on Form 1040, Schedules C, E, and F. File 2009 taxes online for free Note. File 2009 taxes online for free The bankruptcy estate uses Form 1041 as a transmittal for the tax return prepared using Form 1040 and its schedules. File 2009 taxes online for free See Transmittal for Form 1040 under Tax Return Filing Requirements and Payment of Tax, later. File 2009 taxes online for free Administrative expense loss. File 2009 taxes online for free   If the administrative expenses of the bankruptcy estate are more than its gross income for a tax year, the excess amount may be carried back 3 years and forward 7 years. File 2009 taxes online for free The amounts can only be carried to a tax year of the estate and never to a debtor's tax year. File 2009 taxes online for free The excess amount to be carried back or forward is treated like a net operating loss (NOL) and must first be carried back to the earliest year possible. File 2009 taxes online for free For a discussion of NOLs, see Publication 536. File 2009 taxes online for free Attribute carryovers. File 2009 taxes online for free   The bankruptcy estate may use its tax attributes the same way that the debtor would have used them. File 2009 taxes online for free These items are determined as of the first day of the debtor's tax year in which the bankruptcy case begins. File 2009 taxes online for free The bankruptcy estate assumes the following tax attributes from the debtor: NOL carryovers, Carryovers of excess charitable contributions, Recovery of tax benefit items, Credit carryovers, Capital loss carryovers, Basis, holding period, and character of assets, Method of accounting, Passive activity loss and credit carryovers, Unused at-risk deductions, and Other tax attributes provided in the regulations. File 2009 taxes online for free   Certain tax attributes of the bankruptcy estate must be reduced by the amount of income that was previously excluded as a result of cancellation of debt during the bankruptcy proceeding. File 2009 taxes online for free See Debt Cancellation, later. File 2009 taxes online for free   When the bankruptcy estate is terminated (for example, when the case ends), the debtor assumes any remaining tax attributes previously taken over by the bankruptcy estate. File 2009 taxes online for free The debtor also generally assumes any of the tax attributes, listed above, that arose during the administration of the bankruptcy estate. File 2009 taxes online for free Note. File 2009 taxes online for free The debtor does not assume the bankruptcy estate's administrative expense losses because they cannot be used by an individual taxpayer filing Form 1040. File 2009 taxes online for free See Administrative expense loss, above. File 2009 taxes online for free Passive and at-risk activities. File 2009 taxes online for free   For bankruptcy cases beginning after November 8, 1992, passive activity carryover losses and credits and unused at-risk deductions are treated as tax attributes passing from the debtor to the bankruptcy estate, which the estate then passes back to the debtor when the bankruptcy estate terminates. File 2009 taxes online for free Additionally, transfers to the debtor (other than by sale or exchange) of interests in passive or at-risk activities are treated as non-taxable exchanges. File 2009 taxes online for free These transfers include the return of exempt property and abandonment of estate property to the debtor. File 2009 taxes online for free Carrybacks from the debtor's activities. File 2009 taxes online for free   The debtor cannot carry back any NOL or credit carryback from a tax year ending after the bankruptcy case has begun to any tax year ending before the case began. File 2009 taxes online for free Carrybacks from the bankruptcy estate. File 2009 taxes online for free   If the bankruptcy estate has an NOL that did not pass to the estate from the debtor under the attribute carryover rules, the estate can carry the loss back not only to its own earlier tax years but also to the debtor's tax years before the year the bankruptcy case began. File 2009 taxes online for free The estate may also carry back excess credits, such as the general business credit, to the pre-bankruptcy tax years. File 2009 taxes online for free Tax Reporting – Chapter 11 Cases Allocation of income and credits on information returns and required statement for returns for individual chapter 11 cases. File 2009 taxes online for free    In chapter 11 cases, when an employer issues a Form W-2 reporting all of the debtor's wages, salary, or other compensation for a calendar year, and a portion of the earnings represent post-petition services includible in the estate's gross income, the Form W-2 amounts must be allocated between the estate and the debtor. File 2009 taxes online for free The debtor-in-possession or trustee must allocate the income amount reported in box 1 and the income tax withheld reported in box 2 between the debtor and the estate. File 2009 taxes online for free These allocations must reflect that the debtor's gross earnings from post-petition services and gross income from post-petition property are, generally, includible in the estate's gross income and not the debtor's gross income. File 2009 taxes online for free The debtor and trustee may use a simple percentage method to allocate income and income tax withheld. File 2009 taxes online for free The same method must be used to allocate the income and the withheld tax. File 2009 taxes online for free Example. File 2009 taxes online for free If 20% of the wages reported on Form W-2 for a calendar year were earned after the commencement of the case and are included in the estate's gross income, 20% of the withheld income tax reported on Form W-2 must also be claimed as a credit on the estate's income tax return. File 2009 taxes online for free Likewise, 80% of wages must be reported by the debtor and 80% of the income tax withheld must be claimed as a credit on the debtor's income tax return. File 2009 taxes online for free See IRC section 31(a). File 2009 taxes online for free   If information returns are issued to the debtor for gross income, gross proceeds, or other reportable payments that should have been reported to the bankruptcy estate, the debtor-in-possession or trustee must allocate the improperly reported income in a reasonable manner between the debtor and the estate. File 2009 taxes online for free In general, the allocation must ensure that any income and income tax withheld attributable to the post-petition period is reported on the estate's return, and any income and income tax withheld attributable to the pre-petition period is reported on the debtor's return. File 2009 taxes online for free    IRS Notice 2006-83 requires the debtor to attach a statement to his or her individual income tax return (Form 1040) stating that the return is filed subject to a chapter 11 bankruptcy case. File 2009 taxes online for free The statement must also: Show the allocations of income and income tax withheld, Describe the method used to allocate income and income tax withheld, and List the filing date of the bankruptcy case, the bankruptcy court in which the case is pending, the bankruptcy court case number, and the bankruptcy estate's EIN. File 2009 taxes online for free Note. File 2009 taxes online for free The debtor-in-possession or trustee must attach a similar statement to the bankruptcy estate's income tax return (Form 1041). File 2009 taxes online for free   The model Notice 2006-83 Statement, shown above, may be used by debtors, debtors-in-possession, and trustees to satisfy the reporting requirement. File 2009 taxes online for free Self-employment taxes in individual chapter 11 cases. File 2009 taxes online for free   IRC section 1401 imposes a tax upon the self-employment income, that is, the net earnings from self-employment of an individual. File 2009 taxes online for free Net earnings from self-employment are equal to the gross income derived by an individual from any trade or business carried on by such individual, less deductions attributable to the business. File 2009 taxes online for free   Neither section 1115 of the Bankruptcy Code nor IRC section 1398 addresses the application of self-employment tax to the post-petition earnings of the individual debtor. File 2009 taxes online for free Therefore, if the debtor continues to derive gross income from the performance of services as a self-employed individual after the commencement of the bankruptcy case, the debtor must continue to report the debtor's self-employment income on Schedule SE (Form 1040) of the debtor's income tax return. File 2009 taxes online for free This schedule includes self-employment income earned post-petition and the attributable deductions. File 2009 taxes online for free The debtor must pay any self-employment tax imposed by IRC section 1401. File 2009 taxes online for free Employment taxes and employer's obligation to file Form W-2 in individual chapter 11 cases. File 2009 taxes online for free   In chapter 11 cases, post-petition wages earned by a debtor are generally treated as gross income of the estate. File 2009 taxes online for free However, section 1115 of the Bankruptcy Code (11 U. File 2009 taxes online for free S. File 2009 taxes online for free C. File 2009 taxes online for free section 1115) does not affect the determination of what are deemed wages for Federal Insurance Contributions Act (FICA) tax, Federal Unemployment Tax Act (FUTA) tax, or Federal Income Tax Withholding purposes. File 2009 taxes online for free See Notice 2006-83. File 2009 taxes online for free   The reporting and withholding obligations of a debtor's employer also do not change. File 2009 taxes online for free An employer should continue to report the wages and tax withholding on a Form W-2 issued under the debtor's name and social security number. File 2009 taxes online for free Notice to persons required to file information returns (other than Form W-2, Wage and Tax Statement) in individual chapter 11 cases. File 2009 taxes online for free   Within a reasonable time after the commencement of a chapter 11 bankruptcy case, the trustee or debtor-in-possession should provide notification of the bankruptcy estate's EIN to all persons (or entities) that are required to file information returns for the bankruptcy estate's gross income, gross proceeds, or other types of reportable payments. File 2009 taxes online for free See IRC section 6109(a)(2). File 2009 taxes online for free As these payments are the property of the estate under section 1115 of the Bankruptcy Code, the payors should report the gross income, gross proceeds, or other reportable payments on the appropriate information return using the estate's name and EIN as required under the IRC and regulations (see IRC sections 6041 through 6049). File 2009 taxes online for free   The trustee or debtor-in-possession should not, however, provide the EIN to a person (or entity) filing Form W-2 reporting the debtor's wages or other compensation, as section 1115 of the Bankruptcy Code does not affect the determination of what constitutes wages for purposes of federal income tax withholding or FICA. File 2009 taxes online for free See Notice 2006-83. File 2009 taxes online for free An employer should continue to report all wage income and tax withholding, both pre-petition and post-petition, on a Form W-2 to the debtor under the debtor's social security number. File 2009 taxes online for free   The debtor in a chapter 11 case is not required to file a new Form W-4 with an employer solely because the debtor filed a chapter 11 case and the post-petition wages are includible in the estate's income and not the debtor's income. File 2009 taxes online for free However, a new Form W-4 may be necessary if the debtor is no longer entitled to claim the same number of allowances previously claimed because certain deductions or credits now belong to the estate. File 2009 taxes online for free See Employment Tax Regulations section 31. File 2009 taxes online for free 3402(f)(2)-1. File 2009 taxes online for free Additionally, the debtor may wish to file a new Form W-4 to increase the income tax withheld from post-petition wages allocated to the estate to avoid having to make estimated tax payments for the estate. File 2009 taxes online for free See IRC section 6654(a). File 2009 taxes online for free Notice required in converted and dismissed cases. File 2009 taxes online for free   When a chapter 11 bankruptcy case is closed, dismissed, or converted to a chapter 12 or 13 case, the bankruptcy estate ends as a separate taxable entity. File 2009 taxes online for free The debtor should, within a reasonable time, send notice of such event to the persons (or entities) previously notified of the bankruptcy case. File 2009 taxes online for free This helps to ensure that gross income, proceeds, and other reportable payments realized after the event are reported to the debtor under the correct TIN rather than to the estate. File 2009 taxes online for free   When a chapter 11 case is converted to a chapter 7 case, the bankruptcy estate will continue to exist as a separate taxable entity. File 2009 taxes online for free Gross income (other than post-conversion income from the debtor's services), gross proceeds, or other reportable payments should continue to be reported to the estate if they are property of the chapter 7 estate. File 2009 taxes online for free However, income from services performed by the debtor after conversion of the case to chapter 7 is not property of the chapter 7 estate. File 2009 taxes online for free After the conversion, the debtor should notify payors required to report the debtor's nonemployee compensation that compensation earned after the conversion should be reported using the debtor's name and TIN, not the estate's name and EIN. File 2009 taxes online for free Employment taxes. File 2009 taxes online for free   The trustee or debtor-in-possession must withhold income and social security taxes and file employment tax returns for any wages paid by the trustee or debtor, including wage claims paid as administrative expenses. File 2009 taxes online for free See Publication 15, Circular E, Employer's Tax Guide, for details on employer tax responsibilities. File 2009 taxes online for free   The trustee also has the duty to prepare and file Forms W-2 for wage claims paid by the trustee, regardless of whether the claims accrued before or during bankruptcy. File 2009 taxes online for free For a further discussion of employment taxes, see Employment Taxes, later. File 2009 taxes online for free Notice 2006-83 Statement Pending Bankruptcy Case The taxpayer, , filed a bankruptcy petition under chapter 11 of the Bankruptcy Code in the bankruptcy court for the District of . File 2009 taxes online for free The bankruptcy court case number is . File 2009 taxes online for free Gross income, and withheld federal income tax, reported on Form W-2, Forms 1099, Schedule K-1, and other information returns received under the taxpayer's name and social security number (or other taxpayer identification number) are allocated between the taxpayer's TIN and the bankruptcy estate's EIN as follows, using [describe allocation method]:. File 2009 taxes online for free   Year Taxpayer   Estate 1. File 2009 taxes online for free Form W-2, Payor: $   $     Withheld income tax shown on Form W-2 $   $   2. File 2009 taxes online for free Form 1099-INT Payor: $   $     Withheld income tax (if any) shown on Form 1099-INT $   $   3. File 2009 taxes online for free Form 1099-DIV Payor: $   $     Withheld income tax (if any) shown on Form 1099-DIV $   $   4. File 2009 taxes online for free Form 1099-MISC Payor: $   $     Withheld income tax (if any) shown on Form 1099-MISC $   $   Bankruptcy Estate Tax Return Filing Requirements and Payment of Tax Due Filing Requirements Filing threshold. File 2009 taxes online for free   If the bankruptcy estate has gross income that meets or exceeds the minimum amount required for filing, the trustee or debtor-in-possession must file an income tax return on Form 1041. File 2009 taxes online for free This amount is equal to the sum of the personal exemption amount plus the basic standard deduction for a married individual filing separately. File 2009 taxes online for free   For 2012, the threshold filing amount for a bankruptcy estate is $9,750 (the sum of the $3,800 personal exemption plus the $5,950 standard deduction for married individuals filing separately). File 2009 taxes online for free   These amounts are generally adjusted annually. File 2009 taxes online for free See the present year Form 1041 Instructions at www. File 2009 taxes online for free irs. File 2009 taxes online for free gov/form1041 for the current dollar amounts. File 2009 taxes online for free Accounting period. File 2009 taxes online for free   A bankruptcy estate may have a fiscal year. File 2009 taxes online for free However, this period cannot be longer than 12 months. File 2009 taxes online for free Change of accounting period. File 2009 taxes online for free   The bankruptcy estate may change its accounting period (tax year) once without IRS approval. File 2009 taxes online for free This rule allows the bankruptcy trustee to close the estate's tax year early, before the expected termination of the bankruptcy estate. File 2009 taxes online for free The trustee can then file a return for the first short tax year to get a quick determination of the estate's tax liability. File 2009 taxes online for free Employer identification number. File 2009 taxes online for free   The trustee or debtor-in-possession must obtain an EIN for a bankruptcy estate. File 2009 taxes online for free The trustee or debtor-in-possession uses this EIN on all tax returns filed for the bankruptcy estate with the IRS, including estimated tax returns. File 2009 taxes online for free    The social security number of the individual debtor cannot be used as the EIN for the bankruptcy estate. File 2009 taxes online for free   Obtain an EIN for a bankruptcy estate by applying: Online by clicking on the EIN link at www. File 2009 taxes online for free irs. File 2009 taxes online for free gov/businesses/small. File 2009 taxes online for free The EIN is issued immediately once the application information is validated. File 2009 taxes online for free By telephone at 1-800-829-4933 from 7:00 a. File 2009 taxes online for free m. File 2009 taxes online for free to 7:00 p. File 2009 taxes online for free m. File 2009 taxes online for free in the trustee's or debtor-in-possession's local time zone. File 2009 taxes online for free Assistance provided to callers from Alaska and Hawaii will be based on the hours of operation in the Pacific time zone, or By mailing or faxing Form SS-4, Application for Employer Identification Number. File 2009 taxes online for free   If the trustee or debtor-in-possession has not received the bankruptcy estate's EIN by the time the return is due, write “Applied for” and the date you applied in the space for the EIN. File 2009 taxes online for free For more details, see Pub. File 2009 taxes online for free 583, Starting a Business and Keeping Records. File 2009 taxes online for free   Trustees representing ten or more bankruptcy estates (other than estates that will be filing employment or excise tax returns) may request a series or block of EINs. File 2009 taxes online for free Figuring tax due. File 2009 taxes online for free   The bankruptcy estate figures its taxable income the same way an individual figures taxable income. File 2009 taxes online for free However, the estate uses the tax rates for a married individual filing separately to calculate the tax on its taxable income. File 2009 taxes online for free The estate is entitled to one personal exemption and may either itemize deductions or take the basic standard deduction for a married individual filing a separate return. File 2009 taxes online for free The estate cannot take the higher standard deduction allowed for married persons filing separately who are 65 or older or blind. File 2009 taxes online for free Tax rate schedule. File 2009 taxes online for free The tax on income for bankruptcy estates is calculated using the tax rate schedule for Married Individuals Filing Separately not the Estates and Trusts tax rate schedule. File 2009 taxes online for free When to file. File 2009 taxes online for free   Calendar year bankruptcy estates must file Form 1041 by April 15th. File 2009 taxes online for free Fiscal year bankruptcy estates must file on or before the 15th day of the 4th month following the close of its tax year. File 2009 taxes online for free For example, an estate that has a tax year that ends on June 30th must file Form 1041 by October 15th of the tax year. File 2009 taxes online for free If the due date falls on a Saturday, Sunday, or legal holiday, file on the next business day. File 2009 taxes online for free Note. File 2009 taxes online for free The bankruptcy estate is allowed an automatic 6-month extension of time to file the bankruptcy estate tax return upon filing the required application, Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns. File 2009 taxes online for free Transmittal for Form 1040. File 2009 taxes online for free   Form 1041 is used as a transmittal for Form 1040. File 2009 taxes online for free If a return is required, the trustee or debtor-in-possession must complete the identification area at the top of Form 1041 and indicate the chapter under which the bankruptcy estate filed, either chapter 7 or chapter 11. File 2009 taxes online for free   Prepare the bankruptcy estate's return by completing Form 1040. File 2009 taxes online for free In the top margin of Form 1040, write “Attachment to Form 1041 —DO NOT DETACH. File 2009 taxes online for free ” Then, attach Form 1040 to the Form 1041 transmittal. File 2009 taxes online for free Enter the tax and payment amounts on lines 23 through 29 of Form 1041, then sign and date the return. File 2009 taxes online for free An example of a bankruptcy estate's tax return is prepared below. File 2009 taxes online for free Note. File 2009 taxes online for free The filing of the bankruptcy estate's tax return does not relieve a debtor from the requirement to file his or her individual tax return on Form 1040. File 2009 taxes online for free Payment of Tax Due Payment methods. File 2009 taxes online for free   Payment of tax due may be made by check or money order or by credit or debit card. File 2009 taxes online for free For information on how to make payments electronically by credit or debit card, go to irs. File 2009 taxes online for free gov/e-pay. File 2009 taxes online for free      Payments may also be made electronically using the Electronic Federal Tax Payment System (EFTPS), a free tax payment system that allows you to make payments online or by phone. File 2009 taxes online for free To enroll in EFTPS, go to eftps. File 2009 taxes online for free gov or call 1-800-555-4477. File 2009 taxes online for free For more information see Publication 966, Electronic Federal Tax Payment System: A Guide to Getting Started. File 2009 taxes online for free Payment voucher – Form 1041-V. File 2009 taxes online for free   Form 1041-V accompanies payments made by check or money order for Form 1041. File 2009 taxes online for free The voucher includes information about the bankruptcy estate, including the name of the bankruptcy estate, trustee, EIN, and amount due. File 2009 taxes online for free Using Form 1041-V assists the IRS in processing the payment more accurately and efficiently. File 2009 taxes online for free We recommend the use of Form 1041-V; however, there is no penalty if the voucher is not used. File 2009 taxes online for free Estimated tax – Form 1041-ES. File 2009 taxes online for free   In most cases, the trustee or debtor-in-possession must pay any required estimated tax due for the bankruptcy estate. File 2009 taxes online for free See the Form 1041-ES Instructions for information on the minimum threshold amount required for filing Form 1041-ES, paying the estimated tax, and exceptions to filing. File 2009 taxes online for free Employment Taxes The trustee or debtor-in-possession must withhold income and social security taxes and file employment tax returns for any wages paid by the trustee or debtor, including wage claims paid as administrative expenses. File 2009 taxes online for free Until these employment taxes are deposited as required by the IRC, they should be set aside in a separate bank account to ensure that funds are available to satisfy the liability. File 2009 taxes online for free If the employment taxes are not paid as required, the trustee may be held personally liable for payment of the taxes. File 2009 taxes online for free   See Publication 15, (Circular E), Employer's Tax Guide, for details on employer tax responsibilities. File 2009 taxes online for free Also see IRS Notice 931, Deposit Requirements for Employment Taxes, for details on the deposit rules, including the requirement that federal employment tax deposits be made by electronic funds transfer. File 2009 taxes online for free The trustee also has a duty to prepare and file Forms W-2, Wage and Tax Statement, for wage claims paid by the trustee, regardless of whether the claims accrued before or during bankruptcy. File 2009 taxes online for free If the debtor fails to prepare and file Forms W-2 for wages paid before bankruptcy, the trustee should instruct the employees to file a Form 4852, Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. File 2009 taxes online for free , with their individual income tax returns. File 2009 taxes online for free Tax Return Example – Form 1041 This publication is not revised annually. File 2009 taxes online for free Future changes to the forms and their instructions may not be reflected in this example. File 2009 taxes online for free Note. File 2009 taxes online for free The following return was prepared for tax year 2011. File 2009 taxes online for free In 2011, the threshold filing amount for a bankruptcy estate was $9,500 (the sum of the $3,700 personal exemption plus the $5,800 standard deduction for married individuals filing separately). File 2009 taxes online for free Facts and circumstances. File 2009 taxes online for free   On December 15, 2010, Thomas Smith filed a bankruptcy petition under chapter 7. File 2009 taxes online for free Joan Black was appointed trustee to administer the bankruptcy estate and to distribute the assets. File 2009 taxes online for free   The estate received the following assets from Mr. File 2009 taxes online for free Smith: A $100,000 certificate of deposit, Commercial rental real estate with a fair market value (FMV) of $280,000, and His personal residence with an FMV of $200,000. File 2009 taxes online for free   Also, the estate received a $251,500 capital loss carryover. File 2009 taxes online for free   Mr. File 2009 taxes online for free Smith's bankruptcy case was closed on December 31, 2011. File 2009 taxes online for free During 2011, Mr. File 2009 taxes online for free Smith was relieved of $70,000 of debt by the bankruptcy court. File 2009 taxes online for free The estate chose a calendar year as its tax year. File 2009 taxes online for free Joan, the trustee, reviews the estate's transactions and reports the taxable events on the estate's final return. File 2009 taxes online for free Schedule B (Form 1040). File 2009 taxes online for free    The certificate of deposit earned $5,500 of interest during 2011. File 2009 taxes online for free Joan reports this interest on Schedule B. File 2009 taxes online for free She completes this schedule and enters the result on Form 1040. File 2009 taxes online for free Form 4562. File 2009 taxes online for free   Joan enters the depreciation allowed on Form 4562. File 2009 taxes online for free She completes the form and enters the result on Schedule E. File 2009 taxes online for free Schedule E (Form 1040). File 2009 taxes online for free   The commercial real estate was rented through the date of sale. File 2009 taxes online for free Joan reports the income and expenses on Schedule E. File 2009 taxes online for free She enters the net income on Form 1040. File 2009 taxes online for free Form 4797. File 2009 taxes online for free   The commercial real estate was sold on July 1, 2011, for $280,000. File 2009 taxes online for free The property was purchased in 2001 at a cost of $250,000. File 2009 taxes online for free The total depreciation allowable as of the date of sale was $120,000. File 2009 taxes online for free Additionally, $25,000 of selling expenses were incurred. File 2009 taxes online for free Joan reports the gain or loss from the sale on Form 4797. File 2009 taxes online for free She completes the form and enters the gain on Schedule D (Form 1040). File 2009 taxes online for free   Mr. File 2009 taxes online for free Smith's former residence was sold on September 30, 2011. File 2009 taxes online for free The sale price was $200,000, the selling expenses were $20,000, and his adjusted basis was $130,000. File 2009 taxes online for free This sale is excluded from gross income under IRC section 121. File 2009 taxes online for free Note. File 2009 taxes online for free Gains from the sale of personal residences are excluded from gross income up to $250,000 under IRC section 121 ($500,000 for married couples filing a joint return). File 2009 taxes online for free Bankruptcy estates succeed to this exclusion at the commencement of the case. File 2009 taxes online for free See Regulation section 1. File 2009 taxes online for free 1398-3. File 2009 taxes online for free Schedule D (Form 1040). File 2009 taxes online for free   Joan completes Schedule D, taking into account the $250,000 capital loss carryover from 2010 ($251,500 transferred to the estate minus $1,500 used on the estate's 2010 return). File 2009 taxes online for free She enters the results on Form 1040. File 2009 taxes online for free Form 1040, page 1. File 2009 taxes online for free   Joan completes page 1 of the Form 1040 and enters the adjusted gross income on the first line of Form 1040, page 2. File 2009 taxes online for free Schedule A (Form 1040). File 2009 taxes online for free   During 2011, the estate paid mortgage interest and real property tax on Mr. File 2009 taxes online for free Smith's former residence. File 2009 taxes online for free It also paid income tax to the state. File 2009 taxes online for free Joan enters the mortgage interest, real estate tax, and income tax on Schedule A. File 2009 taxes online for free Also, she reports the bankruptcy estate's administrative expenses as a miscellaneous deduction not subject to the 2% floor on miscellaneous itemized deductions. File 2009 taxes online for free She completes the Schedule A and enters the result on page 2 of Form 1040. File 2009 taxes online for free Form 1040, page 2. File 2009 taxes online for free   Joan determines the estate's taxable income and figures its tax using the tax rate schedule for married filing separately. File 2009 taxes online for free She then enters the estate's estimated tax payments and figures the amount the estate still owes. File 2009 taxes online for free Form 982. File 2009 taxes online for free   Joan completes the Schedule D Tax Worksheet to figure the capital loss carryover. File 2009 taxes online for free Because $70,000 of debt was canceled, Joan must reduce the tax attributes of the estate by the amount of the canceled debt. File 2009 taxes online for free See Debt Cancellation, later. File 2009 taxes online for free After the bankruptcy case ends, Mr. File 2009 taxes online for free Smith will assume the estate's tax attributes. File 2009 taxes online for free Mr. File 2009 taxes online for free Smith will assume a capital loss carryover of $53,500 ($123,500 carryover minus the $70,000 attribute reduction) for use in preparation of his individual tax return (Form 1040). File 2009 taxes online for free Note. File 2009 taxes online for free If the bankruptcy estate had continued, the capital loss carryover would be available to the bankruptcy estate for the 2012 tax year. File 2009 taxes online for free Form 1041. File 2009 taxes online for free   Joan enters the total tax, estimated tax payments, and tax due from Form 1040 on Form 1041. File 2009 taxes online for free She completes the identification area at the top of Form 1041, then signs and dates the return as the trustee on behalf of the bankruptcy estate. File 2009 taxes online for free This image is too large to be displayed in the current screen. File 2009 taxes online for free Please click the link to view the image. File 2009 taxes online for free Sample Form 1040 - page 1 This image is too large to be displayed in the current screen. File 2009 taxes online for free Please click the link to view the image. File 2009 taxes online for free Sample Form 1040 - page 2 This image is too large to be displayed in the current screen. File 2009 taxes online for free Please click the link to view the image. File 2009 taxes online for free Sample Schedule A This image is too large to be displayed in the current screen. File 2009 taxes online for free Please click the link to view the image. File 2009 taxes online for free Sample Schedule B This image is too large to be displayed in the current screen. File 2009 taxes online for free Please click the link to view the image. File 2009 taxes online for free Sample Schedule D This image is too large to be displayed in the current screen. File 2009 taxes online for free Please click the link to view the image. File 2009 taxes online for free Sample Schedule E This image is too large to be displayed in the current screen. File 2009 taxes online for free Please click the link to view the image. File 2009 taxes online for free Sample Form 4797 - page 1 This image is too large to be displayed in the current screen. File 2009 taxes online for free Please click the link to view the image. File 2009 taxes online for free Sample Form 2119 This image is too large to be displayed in the current screen. File 2009 taxes online for free Please click the link to view the image. File 2009 taxes online for free Sample Form 4797 - page 2 This image is too large to be displayed in the current screen. File 2009 taxes online for free Please click the link to view the image. File 2009 taxes online for free Sample Form 4562 This image is too large to be displayed in the current screen. File 2009 taxes online for free Please click the link to view the image. File 2009 taxes online for free Sample Capital Loss Carryover Worksheet This image is too large to be displayed in the current screen. File 2009 taxes online for free Please click the link to view the image. File 2009 taxes online for free Sample Form 982 Capital Loss Carryover Worksheet—Lines 6 and 14 Use this worksheet to figure your capital loss carryovers from 2010 to 2011 if your 2010 Schedule D, line 21, is a loss and (a) that loss is a smaller loss than the loss on your 2010 Schedule D, line 16, or (b) the amount on your 2010 Form 1040, line 41 (or your 2010 Form 1040NR, line 38, if applicable) is less than zero. File 2009 taxes online for free Otherwise, you do not have any carryovers. File 2009 taxes online for free 1. File 2009 taxes online for free Enter the amount from your 2010 Form 1040, line 41, or Form 1040NR, line 38. File 2009 taxes online for free If a loss, enclose the amount in parentheses 1. File 2009 taxes online for free 19,880   2. File 2009 taxes online for free Enter the loss from your 2010 Schedule D, line 21, as a positive amount 2. File 2009 taxes online for free 1,500   3. File 2009 taxes online for free Combine lines 1 and 2. File 2009 taxes online for free If zero or less, enter -0- 3. File 2009 taxes online for free 21,380   4. File 2009 taxes online for free Enter the smaller of line 2 or line 3 4. File 2009 taxes online for free 1,500     If line 7 of your 2010 Schedule D is a loss, go to line 5; otherwise, enter -0- on line 5 and go to line 9. File 2009 taxes online for free       5. File 2009 taxes online for free Enter the loss from your 2010 Schedule D, line 7, as a positive amount 5. File 2009 taxes online for free 0   6. File 2009 taxes online for free Enter any gain from your 2010 Schedule D, line 15. File 2009 taxes online for free If a loss, enter -0- 6. File 2009 taxes online for free         7. File 2009 taxes online for free Add lines 4 and 6 7. File 2009 taxes online for free 1,500   8. File 2009 taxes online for free Short-term capital loss carryover for 2011. File 2009 taxes online for free Subtract line 7 from line 5. File 2009 taxes online for free If zero or less, enter -0-. File 2009 taxes online for free If more than zero, also enter this amount on Schedule D, line 6 8. File 2009 taxes online for free 0     If line 15 of your 2010 Schedule D is a loss, go to line 9; otherwise, skip lines 9 through 13. File 2009 taxes online for free       9. File 2009 taxes online for free Enter the loss from your 2010 Schedule D, line 15, as a positive amount 9. File 2009 taxes online for free 251,500   10. File 2009 taxes online for free Enter any gain from your 2010 Schedule D, line 7. File 2009 taxes online for free If a loss, enter -0- 10. File 2009 taxes online for free 0       11. File 2009 taxes online for free Subtract line 5 from line 4. File 2009 taxes online for free If zero or less, enter -0- 11. File 2009 taxes online for free 1,500       12. File 2009 taxes online for free Add lines 10 and 11 12. File 2009 taxes online for free 1,500   13. File 2009 taxes online for free Long-term capital loss carryover for 2011. File 2009 taxes online for free Subtract line 12 from line 9. File 2009 taxes online for free If zero or less, enter -0-. File 2009 taxes online for free If more than zero, also enter this amount on Schedule D, line 14 13. File 2009 taxes online for free 250,000                       Partnerships and Corporations Filing Requirements A separate taxable estate is not created when a partnership or corporation files a bankruptcy petition and their tax return filing requirements do not change. File 2009 taxes online for free The debtor-in-possession, court appointed trustee, assignee, or receiver must file the entity's income tax returns on Form 1065, Form 1120 or, Form 1120S. File 2009 taxes online for free In cases where a trustee or receiver is not appointed, the debtor-in-possession continues business operations and remains in possession of the business' property during the bankruptcy proceeding. File 2009 taxes online for free The debtor-in-possession, rather than the general partner of a partnership or corporate officer of a corporation, assumes the fiduciary responsibility to file the business' tax returns. File 2009 taxes online for free Partnerships The filing requirements for a partnership in a bankruptcy proceeding do not change. File 2009 taxes online for free However, the responsibility to file the required returns becomes that of the court appointed trustee, receiver, or debtor-in-possession. File 2009 taxes online for free A partnership's debt that is canceled as a result of the bankruptcy proceeding is not included in the partnership's income. File 2009 taxes online for free However, It may or may not be included in the individual partners' income. File 2009 taxes online for free See Partnerships, below under Debt Cancellation. File 2009 taxes online for free Corporations The filing requirements for a corporation in a bankruptcy proceeding also do not change. File 2009 taxes online for free A bankruptcy trustee, receiver, or debtor-in-possession, having possession of or holding title to substantially all of the property or business operations of the debtor corporation, must file the debtor's corporate income tax return for the tax year. File 2009 taxes online for free The following discussion only highlights bankruptcy tax rules applying to corporations. File 2009 taxes online for free The complex details of corporate bankruptcy reorganizations are beyond the scope of this publication. File 2009 taxes online for free Therefore, you may wish to seek the help of a professional tax advisor. File 2009 taxes online for free See Corporations under Debt Cancellation for information about a corporation's debt canceled in a bankruptcy proceeding. File 2009 taxes online for free Tax-Free Reorganizations The tax-free reorganization provisions of the Internal Revenue Code allow a corporation to transfer all or part of its assets to another corporation in a bankruptcy under title 11 of the United States Code or in a similar case. File 2009 taxes online for free However, under the reorganization plan, the stock or securities of the corporation to which the assets are transferred must be distributed in a transaction that qualifies under IRC section 354, 355, or 356. File 2009 taxes online for free A “similar case” includes a receivership, foreclosure, or other similar proceeding in a federal or state court. File 2009 taxes online for free In these cases, any party to the reorganization must be under the jurisdiction of the court and the transfer of assets under the plan of reorganization must be approved by the court. File 2009 taxes online for free In a receivership, foreclosure, or similar proceeding before a federal or state agency involving certain financial institutions, the agency is treated as a court. File 2009 taxes online for free Generally, IRC section 354 provides that no gain or loss is recognized if a corporation's stock is exchanged solely for stock or securities in a corporation that is a party to the reorganization under a qualifying reorganization plan. File 2009 taxes online for free In this case, shareholders in the bankrupt corporation would recognize no gain or loss if they exchange their stock solely for stock or securities of the corporation acquiring the bankrupt corporation's assets. File 2009 taxes online for free IRC section 355 generally provides that no gain or loss is recognized by a shareholder if a corporation distributes solely stock or securities of another corporation that the distributing corporation controls immediately before the distribution. File 2009 taxes online for free IRC section 356 allows tax-free exchanges in situations that would qualify under IRC section 354 or 355, except that other property or money, in addition to the permitted stock or securities, is received by the shareholder. File 2009 taxes online for free In this situation, gain is recognized by the shareholder, but only to the extent of the money and the FMV of the other property received. File 2009 taxes online for free No loss is recognized in this situation. File 2009 taxes online for free Exemption from tax return filing A trustee, receiver, or assignee of a corporation in bankruptcy, receivership, or in the process of dissolving, may apply to the IRS for relief from filing federal income tax returns for the corporation. File 2009 taxes online for free To qualify, the corporation must have ceased business operations and have no assets nor income for the tax year. File 2009 taxes online for free The exemption request must be submitted to the local IRS Insolvency Office handling the case. File 2009 taxes online for free The request to the IRS must include the name, address, and EIN of the corporation and a statement of the facts (with any supporting documents) showing why the debtor needs relief from the filing requirements. File 2009 taxes online for free The request must also include the following statement: “I hereby request relief from filing federal income tax returns for tax years ending _____ for the above-named corporation and declare under penalties of perjury that to the best of my knowledge and belief the information contained herein is correct. File 2009 taxes online for free ” The statement must be signed by the trustee, receiver or assignee. File 2009 taxes online for free The statement must also include notice of appointment to act on behalf of the corporation (this is not required for bankruptcy trustees or debtors-in-possession). File 2009 taxes online for free The IRS will act on your request within 90 days. File 2009 taxes online for free Disclosure of return information to trustee. File 2009 taxes online for free   Upon written request, current and earlier returns of the debtor are open to inspection by or disclosure to the trustee or receiver. File 2009 taxes online for free However, in bankruptcy cases other than those of individuals filing under chapter 7 or 11, such as a corporate bankruptcy, the IRS must find that the trustee has a material interest that will be affected by information on the return. File 2009 taxes online for free Material interest is generally defined as a financial or monetary interest. File 2009 taxes online for free Material interest is not limited to the trustee's responsibility to file a return on behalf of the bankruptcy estate. File 2009 taxes online for free Receiverships Court-established receiverships sometimes arise in connection with bankruptcies. File 2009 taxes online for free Certain court-established receiverships should be treated as qualified settlement funds ("QSFs") for purposes of IRC section 468B and the underlying Treasury Regulations. File 2009 taxes online for free QSFs are required to file an annual income tax return, Form 1120-SF, U. File 2009 taxes online for free S. File 2009 taxes online for free Income Tax Return for Settlement Funds. File 2009 taxes online for free More information about QSFs may be found in Treasury Regulation sections 1. File 2009 taxes online for free 468B-1 through -5. File 2009 taxes online for free Determination of Tax The determination of the proper amount of tax due for a tax year begins with the bankruptcy estate's filing of Form 1041, and the individual debtor's filing of Form 1040, or for bankrupt entities filing Forms 1065, 1120, or 1120S. File 2009 taxes online for free After a return is filed, the IRS will either accept the return as filed or select the return for examination. File 2009 taxes online for free Under examination the IRS may redetermine the tax liability shown on the return. File 2009 taxes online for free If the bankruptcy estate or debtor disagrees with the redetermined tax due, the tax as redetermined by the IRS may be contested in the bankruptcy court, or Tax Court, as applicable. File 2009 taxes online for free See Court Jurisdiction over Tax Matters, later. File 2009 taxes online for free Prompt Determination Requests Pursuant to Rev. File 2009 taxes online for free Proc. File 2009 taxes online for free 2006-24, 2006-22 I. File 2009 taxes online for free R. File 2009 taxes online for free B. File 2009 taxes online for free 943, www. File 2009 taxes online for free irs. File 2009 taxes online for free gov/irb/2006-22_IRB/ar12, as modified by Announcement 2011-77, www. File 2009 taxes online for free irs. File 2009 taxes online for free gov/irb/2011-51_IRB/ar13, the bankruptcy trustee may request a determination of any unpaid tax liability incurred by the bankruptcy estate during the administration of the case, by filing a tax return and a request for such determination with the IRS. File 2009 taxes online for free Unless the return is fraudulent or contains a material misrepresentation, the estate, trustee, debtor, and any successor to the debtor are discharged from liability upon payment of the tax: As determined by the IRS, As determined by the bankruptcy court, after completion of the IRS examination, or As shown on the return, if the IRS does not: Notify the trustee within 60 days after the request for determination that the return has been selected for examination, or Complete the examination and notify the trustee of any tax due within 180 days after the request (or any additional time permitted by the bankruptcy court). File 2009 taxes online for free Making the request for determination. File 2009 taxes online for free   As detailed in Rev. File 2009 taxes online for free Proc. File 2009 taxes online for free 2006-24, as modified by Announcement 2011-77, to request a prompt determination of any unpaid tax liability of the estate, the trustee must file a signed written request, in duplicate, with the Internal Revenue Service, Centralized Insolvency Operation, P. File 2009 taxes online for free O. File 2009 taxes online for free Box 7346, Philadelphia, PA 19101–7346 (marked “Request for Prompt Determination”). File 2009 taxes online for free   The request must be submitted in duplicate and must be executed under penalties of perjury. File 2009 taxes online for free In addition, the trustee must submit along with the request an exact copy of the return(s) filed by the trustee with the IRS for each completed tax period. File 2009 taxes online for free The request must contain the following information: A statement indicating that it is a Request for Prompt Determination of Tax Liability, specifying the type of return and tax period for each return being filed. File 2009 taxes online for free The name and location of the office where the return was filed. File 2009 taxes online for free The name of the debtor. File 2009 taxes online for free Debtor's social security number, TIN, or EIN. File 2009 taxes online for free Type of bankruptcy estate. File 2009 taxes online for free Bankruptcy case number. File 2009 taxes online for free Court where the bankruptcy case is pending. File 2009 taxes online for free   The copy of the return(s) submitted with the request must be an exact copy of a valid return. File 2009 taxes online for free A request for prompt determination will be considered incomplete and returned to the trustee if it is filed with a copy of a document that does not qualify as a valid return. File 2009 taxes online for free    To qualify as valid, a return must meet certain criteria, including a signature under penalties of perjury. File 2009 taxes online for free A document filed by the trustee with the jurat stricken, deleted, or modified will not qualify as a valid return. File 2009 taxes online for free Examination of return. File 2009 taxes online for free   The IRS will notify the trustee within 60 days from receipt of the request whether the return filed by the trustee has been selected for examination or has been accepted as filed. File 2009 taxes online for free If the return is selected for examination, it will be examined as soon as possible. File 2009 taxes online for free The IRS will notify the trustee of any tax due within 180 days from receipt of the application or within any additional time permitted by the bankruptcy court. File 2009 taxes online for free   If a prompt determination request is incomplete, all the documents received by the IRS will be returned to the trustee by the assigned Field Insolvency Office with an explanation identifying the missing item(s) and instructions to re-file the request once corrected. File 2009 taxes online for free   Once corrected, the request must be filed with the IRS at the Field Insolvency Office address specified in the correspondence accompanying the returned incomplete request. File 2009 taxes online for free   In the case of an incomplete request submitted with a copy of an invalid return document, the trustee must file a valid original return with the appropriate IRS office and submit a copy of that return with the corrected request when the request is re-filed. File 2009 taxes online for free Note. File 2009 taxes online for free An incomplete request includes those submitted with a copy of a return form, the original of which does not qualify as a valid return. File 2009 taxes online for free   The 60-day period to notify the trustee whether the return is accepted as filed or has been selected for examination does not begin to run until a complete request package is recei
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If you're looking for data on general IRS operations, budget, and compliance, this is the section for you. Within this section, you can learn about taxpayer refunds, IRS collections, law enforcement, taxpayer assistance, system management, and compliance.

Below are links to the topics within this section, as well as some examples of what you can find within each topic.

Assisting Taxpayers • Assistance & education programs
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Collecting Revenue • Gross collections
• Number of returns filed
• Number of returns filed electronically
• Return filing projections
Data by State • Returns filed, taxes collected and refunds by state, IRS Data Book—fiscal year 2008
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• Tax-exempt organizations examined
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• Criminal investigation program
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• Total dollars refunded
• Information on historical IRS tax refunds
• Individual income tax refund offsets
Budget & Workforce • Costs incurred by the IRS
• Appeals workload
• IRS personnel summary
• Internal audits and security activities
IRS Tax Compliance Reports

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Page Last Reviewed or Updated: 05-Sep-2013

The File 2009 Taxes Online For Free

File 2009 taxes online for free 4. File 2009 taxes online for free   Detailed Examples Table of Contents These examples use actual forms to help you prepare your income tax return. File 2009 taxes online for free However, the information shown on the filled-in forms is not from any actual person or scenario. File 2009 taxes online for free Example 1—Mortgage loan modification. File 2009 taxes online for free    In 2007, Nancy Oak bought a main home for $435,000. File 2009 taxes online for free Nancy took out a $420,000 mortgage loan to buy the home and made a down payment of $15,000. File 2009 taxes online for free The loan was secured by the home. File 2009 taxes online for free The mortgage loan was a recourse debt, meaning that Nancy was personally liable for the debt. File 2009 taxes online for free In 2008, Nancy took out a second mortgage loan (also a recourse debt) in the amount of $30,000 that was used to substantially improve her kitchen. File 2009 taxes online for free    In 2011, when the outstanding principal of the first and second mortgage loans was $440,000, Nancy refinanced the two recourse loans into one recourse loan in the amount of $475,000. File 2009 taxes online for free The FMV of Nancy's home at the time of the refinancing was $500,000. File 2009 taxes online for free Nancy used the additional $35,000 debt ($475,000 new mortgage loan minus $440,000 outstanding principal of Nancy's first and second mortgage loans immediately before the refinancing) to pay off personal credit cards and to pay college tuition for her son. File 2009 taxes online for free After the refinancing, Nancy has qualified principal residence indebtedness in the amount of $440,000 because the refinanced debt is qualified principal residence indebtedness only to the extent the amount of debt is not more than the old mortgage principal just before the refinancing. File 2009 taxes online for free   In 2013, Nancy was unable to make her mortgage loan payments. File 2009 taxes online for free On August 31, 2013, when the outstanding balance of her refinanced mortgage loan was still $475,000 and the FMV of the property was $425,000, Nancy's bank agreed to a loan modification (a “workout”) that resulted in a $40,000 reduction in the principal balance of her loan. File 2009 taxes online for free Nancy was neither insolvent nor in bankruptcy at the time of the loan modification. File 2009 taxes online for free   Nancy received a 2013 Form 1099-C from her bank in January 2014 showing canceled debt of $40,000 in box 2. File 2009 taxes online for free Identifiable event code "F" appears in box 6. File 2009 taxes online for free This box shows the reason the creditor has filed Form 1099-C. File 2009 taxes online for free To determine if she must include the canceled debt in her income, Nancy must determine whether she meets any of the exceptions or exclusions that apply to canceled debts. File 2009 taxes online for free Nancy determines that the only exception or exclusion that applies to her is the qualified principal residence indebtedness exclusion. File 2009 taxes online for free   Next, Nancy determines the amount, if any, of the $40,000 of canceled debt that was qualified principal residence indebtedness. File 2009 taxes online for free Although Nancy has $440,000 of qualified principal residence indebtedness, part of her loan ($35,000) was not qualified principal residence indebtedness because it was used to pay off personal credit cards and college tuition for her son. File 2009 taxes online for free Applying the ordering rule, the qualified principal residence indebtedness exclusion applies only to the extent the amount canceled is more than the amount of the debt (immediately before the cancellation) that is not qualified principal residence indebtedness. File 2009 taxes online for free Thus, Nancy can exclude only $5,000 of the canceled debt as qualified principal residence indebtedness ($40,000 amount canceled minus $35,000 nonqualified debt). File 2009 taxes online for free   Because Nancy does not meet any other exception or exclusion, she checks only the box on line 1e of Form 982 and enters $5,000 on line 2. File 2009 taxes online for free Nancy must also enter $5,000 on line 10b and reduce the basis of her main home by the $5,000 she excluded from income, bringing the adjusted basis in her home to $460,000 ($435,000 purchase price plus $30,000 substantial improvement minus $5,000). File 2009 taxes online for free Nancy must also include the $35,000 nonqualified debt portion in income on Form 1040, line 21. File 2009 taxes online for free You can see Nancy's Form 1099-C and a portion of her Form 1040 below. File 2009 taxes online for free Nancy's 2013 Form 1099-C, Cancellation of Debt This image is too large to be displayed in the current screen. File 2009 taxes online for free Please click the link to view the image. File 2009 taxes online for free Form 1099-C, Cancellation of Debt Nancy's 2013 Form 1040 This image is too large to be displayed in the current screen. File 2009 taxes online for free Please click the link to view the image. File 2009 taxes online for free Form 1040, U. File 2009 taxes online for free S. File 2009 taxes online for free Individual Income Tax Nancy's Form 982 This image is too large to be displayed in the current screen. File 2009 taxes online for free Please click the link to view the image. File 2009 taxes online for free Form 982 Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment)              Example 2—Mortgage loan foreclosure. File 2009 taxes online for free    In 2005, John and Mary Elm bought a main home for $335,000. File 2009 taxes online for free John and Mary took out a $320,000 mortgage loan to buy the home and made a down payment of $15,000. File 2009 taxes online for free The loan was secured by the home and is a recourse debt, meaning John and Mary are personally liable for the debt. File 2009 taxes online for free   John and Mary became unable to make their mortgage loan payments and on March 1, 2013, when the outstanding balance of the mortgage loan was $315,000 and the FMV of the property was $290,000, the bank foreclosed on the property and simultaneously canceled the remaining mortgage debt. File 2009 taxes online for free Immediately before the foreclosure, John and Mary's only other assets and liabilities were a checking account with a balance of $6,000, retirement savings of $13,000, and credit card debt of $5,500. File 2009 taxes online for free   John and Mary received a 2013 Form 1099-C showing canceled debt of $25,000 in box 2 ($315,000 outstanding balance minus $290,000 FMV) and an FMV of $290,000 in box 7. File 2009 taxes online for free Identifiable event code "D" appears in box 6. File 2009 taxes online for free This box shows the reason the creditor has filed Form 1099-C. File 2009 taxes online for free In order to determine if John and Mary must include the canceled debt in income, they must first determine whether they meet any of the exceptions or exclusions that apply to canceled debts. File 2009 taxes online for free In this example, John and Mary meet both the insolvency and qualified principal residence indebtedness exclusions. File 2009 taxes online for free Their sample Form 1099-C is shown on this page. File 2009 taxes online for free   John and Mary complete the insolvency worksheet and determine that they were insolvent immediately before the cancellation because at that time their liabilities exceeded the FMV of their assets by $11,500 ($320,500 total liabilities minus $309,000 FMV of total assets). File 2009 taxes online for free However, because the entire debt canceled is qualified principal residence indebtedness, the insolvency exclusion only applies if John and Mary elect to apply the insolvency exclusion instead of the qualified principal residence exclusion. File 2009 taxes online for free   John and Mary do not elect to apply the insolvency exclusion instead of the qualified principal residence exclusion because under the insolvency exclusion their exclusion would be limited to the amount by which they were insolvent ($11,500). File 2009 taxes online for free Instead, John and Mary check box 1e of Form 982 to exclude the canceled debt under the qualified principal residence exclusion. File 2009 taxes online for free Under the qualified principal residence exclusion, the amount that John and Mary can exclude is not limited because their qualified principal residence indebtedness is not more than $2 million and no portion of the loan was nonqualified debt. File 2009 taxes online for free As a result, John and Mary enter the full $25,000 of canceled debt on line 2 of Form 982. File 2009 taxes online for free Because John and Mary no longer own the home due to the foreclosure, John and Mary have no remaining basis in the home at the time of the debt cancellation. File 2009 taxes online for free Thus, John and Mary leave line 10b of Form 982 blank. File 2009 taxes online for free   John and Mary must also determine whether they have a gain or loss from the foreclosure. File 2009 taxes online for free John and Mary complete Table 1-1 (shown below) and find that they have a $45,000 loss from the foreclosure. File 2009 taxes online for free Because this loss relates to their home, it is a nondeductible loss. File 2009 taxes online for free   John and Mary's Form 1099-C, Insolvency Worksheet, and Form 982 follow. File 2009 taxes online for free John and Mary's 2013 Form 1099-C, Cancellation of Debt This image is too large to be displayed in the current screen. File 2009 taxes online for free Please click the link to view the image. File 2009 taxes online for free Form 1099-C, Cancellation of Debt Table 1-1. File 2009 taxes online for free Worksheet for Foreclosures and Repossessions (for John and Mary Elm) Part 1. File 2009 taxes online for free Complete Part 1 only if you were personally liable for the debt (even if none of the debt was canceled). File 2009 taxes online for free Otherwise, go to Part 2. File 2009 taxes online for free 1. File 2009 taxes online for free 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 $315,000. File 2009 taxes online for free 00 2. File 2009 taxes online for free Enter the fair market value of the transferred property $290,000. File 2009 taxes online for free 00 3. File 2009 taxes online for free Ordinary income from the cancellation of debt upon foreclosure or repossession. File 2009 taxes online for free * Subtract line 2 from line 1. File 2009 taxes online for free If less than zero, enter zero. File 2009 taxes online for free Next, go to Part 2 $ 25,000. File 2009 taxes online for free 00 Part 2. File 2009 taxes online for free Gain or loss from foreclosure or repossession. File 2009 taxes online for free   4. File 2009 taxes online for free Enter the smaller of line 1 or line 2. File 2009 taxes online for free If you did not complete Part 1 (because you were not personally liable for the debt), enter the amount of outstanding debt immediately before the transfer of property $290,000. File 2009 taxes online for free 00 5. File 2009 taxes online for free Enter any proceeds you received from the foreclosure sale   6. File 2009 taxes online for free Add line 4 and line 5 $290,000. File 2009 taxes online for free 00 7. File 2009 taxes online for free Enter the adjusted basis of the transferred property $335,000. File 2009 taxes online for free 00 8. File 2009 taxes online for free Gain or loss from foreclosure or repossession. File 2009 taxes online for free Subtract line 7 from line 6 ($ 45,000. File 2009 taxes online for free 00) * The income may not be taxable. File 2009 taxes online for free See chapter 1 for more details. File 2009 taxes online for free Insolvency Worksheet—John and Mary Elm Date debt was canceled (mm/dd/yy) 03/01/13 Part I. File 2009 taxes online for free Total liabilities immediately before the cancellation (do not include the same liability in more than one category) Liabilities (debts) Amount Owed Immediately Before the Cancellation 1. File 2009 taxes online for free Credit card debt $ 5,500 2. File 2009 taxes online for free Mortgage(s) on real property (including first and second mortgages and home equity loans) (mortgage(s) can be on personal residence, any additional residence, or property held for investment or used in a trade or business) $ 315,000 3. File 2009 taxes online for free Car and other vehicle loans $ 4. File 2009 taxes online for free Medical bills owed $ 5. File 2009 taxes online for free Student loans $ 6. File 2009 taxes online for free Accrued or past-due mortgage interest $ 7. File 2009 taxes online for free Accrued or past-due real estate taxes $ 8. File 2009 taxes online for free Accrued or past-due utilities (water, gas, electric) $ 9. File 2009 taxes online for free Accrued or past-due child care costs $ 10. File 2009 taxes online for free Federal or state income taxes remaining due (for prior tax years) $ 11. File 2009 taxes online for free Judgments $ 12. File 2009 taxes online for free Business debts (including those owed as a sole proprietor or partner) $ 13. File 2009 taxes online for free Margin debt on stocks and other debt to purchase or secured by investment assets other than real property $ 14. File 2009 taxes online for free Other liabilities (debts) not included above $ 15. File 2009 taxes online for free Total liabilities immediately before the cancellation. File 2009 taxes online for free Add lines 1 through 14. File 2009 taxes online for free $ 320,500 Part II. File 2009 taxes online for free Fair market value (FMV) of assets owned immediately before the cancellation (do not include the FMV of the same asset in more than one category) Assets FMV Immediately Before  the Cancellation 16. File 2009 taxes online for free Cash and bank account balances $ 6,000 17. File 2009 taxes online for free Real property, including the value of land (can be main home, any additional home, or property held for investment or used in a trade or business) $ 290,000 18. File 2009 taxes online for free Cars and other vehicles $ 19. File 2009 taxes online for free Computers $ 20. File 2009 taxes online for free Household goods and furnishings (for example, appliances, electronics, furniture, etc. File 2009 taxes online for free ) $ 21. File 2009 taxes online for free Tools $ 22. File 2009 taxes online for free Jewelry $ 23. File 2009 taxes online for free Clothing $ 24. File 2009 taxes online for free Books $ 25. File 2009 taxes online for free Stocks and bonds $ 26. File 2009 taxes online for free Investments in coins, stamps, paintings, or other collectibles $ 27. File 2009 taxes online for free Firearms, sports, photographic, and other hobby equipment $ 28. File 2009 taxes online for free Interest in retirement accounts (IRA accounts, 401(k) accounts, and other retirement accounts) $ 13,000 29. File 2009 taxes online for free Interest in a pension plan $ 30. File 2009 taxes online for free Interest in education accounts $ 31. File 2009 taxes online for free Cash value of life insurance $ 32. File 2009 taxes online for free Security deposits with landlords, utilities, and others $ 33. File 2009 taxes online for free Interests in partnerships $ 34. File 2009 taxes online for free Value of investment in a business $ 35. File 2009 taxes online for free Other investments (for example, annuity contracts, guaranteed investment contracts, mutual funds, commodity accounts, interests in hedge funds, and options) $ 36. File 2009 taxes online for free Other assets not included above $ 37. File 2009 taxes online for free FMV of total assets immediately before the cancellation. File 2009 taxes online for free Add lines 16 through 36. File 2009 taxes online for free $ 309,000 Part III. File 2009 taxes online for free Insolvency 38. File 2009 taxes online for free Amount of Insolvency. File 2009 taxes online for free Subtract line 37 from line 15. File 2009 taxes online for free If zero or less, you are not insolvent. File 2009 taxes online for free $ 11,500 John and Mary's Form 982 This image is too large to be displayed in the current screen. File 2009 taxes online for free Please click the link to view the image. File 2009 taxes online for free Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment)          Example 3—Mortgage loan foreclosure with debt exceeding $2 million limit. File 2009 taxes online for free    In 2011, Kathy and Frank Willow got married and entered into a contract with Hive Construction Corporation to build a house for $3,000,000 to be used as their main home. File 2009 taxes online for free Kathy and Frank made a $400,000 down payment and took out a $2,600,000 mortgage to finance the remaining cost of the house. File 2009 taxes online for free Kathy and Frank are personally liable for the mortgage loan, which is secured by the home. File 2009 taxes online for free   In November 2013, when the outstanding principal balance on the mortgage loan was $2,500,000, the FMV of the property fell to $1,750,000 and Kathy and Frank abandoned the property by permanently moving out. File 2009 taxes online for free The lender foreclosed on the property and, on December 5, 2013, sold the property to another buyer for $1,750,000. File 2009 taxes online for free On December 26, 2013, the lender canceled the remaining debt. File 2009 taxes online for free Kathy and Frank have no tax attributes other than basis of personal-use property. File 2009 taxes online for free   The lender issued a 2013 Form 1099-C to Kathy and Frank showing canceled debt of $750,000 in box 2 (the remaining balance on the $2,500,000 mortgage debt after application of the foreclosure sale proceeds) and $1,750,000 in box 7 (FMV of the property). File 2009 taxes online for free Identifiable event code "D" appears in box 6. File 2009 taxes online for free This box shows the reason the creditor has filed Form 1099-C. File 2009 taxes online for free Although Kathy and Frank abandoned the property, the lender did not need to also file a Form 1099-A because the lender canceled the debt in connection with the foreclosure in the same calendar year. File 2009 taxes online for free Kathy and Frank are filing a joint return for 2013. File 2009 taxes online for free   Because the foreclosure occurred prior to the debt cancellation, Kathy and Frank first calculate their gain or loss from the foreclosure using Table 1-1. File 2009 taxes online for free Because Kathy and Frank remained personally liable for the $750,000 debt remaining after the foreclosure ($2,500,000 outstanding debt immediately before the foreclosure minus $1,750,000 satisfied through the sale of the home), Kathy and Frank enter $1,750,000 on line 1 of Table 1-1 ($2,500,000 outstanding debt immediately before the foreclosure minus the $750,000 for which they remained liable). File 2009 taxes online for free Completing Table 1-1, Kathy and Frank find that they have no ordinary income from the cancellation of debt upon foreclosure and that they have a $1,250,000 loss. File 2009 taxes online for free Because this loss relates to their home, it is a nondeductible loss. File 2009 taxes online for free   Because the lender later canceled the remaining amount of the debt, Kathy and Frank must also determine whether that canceled debt is taxable. File 2009 taxes online for free Immediately before the cancellation, Kathy and Frank had $15,000 in a savings account, household furnishings with an FMV of $17,000, a car with an FMV of $10,000, and $18,000 in credit card debt. File 2009 taxes online for free Kathy and Frank also had the $750,000 remaining balance on the mortgage loan at that time. File 2009 taxes online for free The household furnishings originally cost $30,000. File 2009 taxes online for free The car had been fully paid off (so there was no related outstanding debt) and was originally purchased for $16,000. File 2009 taxes online for free Kathy and Frank had no adjustments to the cost basis of the car. File 2009 taxes online for free Kathy and Frank had no other assets or liabilities at the time of the cancellation. File 2009 taxes online for free Kathy and Frank complete the insolvency worksheet to calculate that they were insolvent to the extent of $726,000 immediately before the cancellation ($768,000 of total liabilities minus $42,000 FMV of total assets). File 2009 taxes online for free   At the beginning of 2014, Kathy and Frank had $9,000 in their savings account and $15,000 in credit card debt. File 2009 taxes online for free Kathy and Frank also owned the same car at that time (still with an FMV of $10,000 and basis of $16,000) and the same household furnishings (still with an FMV of $17,000 and a basis of $30,000). File 2009 taxes online for free Kathy and Frank had no other assets or liabilities at that time. File 2009 taxes online for free Kathy and Frank no longer own the home because the lender foreclosed on it in 2013. File 2009 taxes online for free   Because the canceled debt is qualified principal residence indebtedness, the insolvency exclusion does not apply unless Kathy and Frank elect to apply the insolvency exclusion instead of the qualified principal residence indebtedness exclusion. File 2009 taxes online for free The maximum amount that Kathy and Frank can treat as qualified principal residence indebtedness is $2,000,000. File 2009 taxes online for free The remaining $500,000 ($2,500,000 outstanding mortgage loan minus $2,000,000 limit on qualified principal residence indebtedness) is not qualified principal residence indebtedness. File 2009 taxes online for free Because only a part of the loan is qualified principal residence indebtedness, Kathy and Frank must apply the ordering rule to the canceled debt. File 2009 taxes online for free Under the ordering rule, the qualified principal residence indebtedness exclusion applies only to the extent that the amount canceled ($750,000) exceeds the amount of the loan (immediately before the cancellation) that is not qualified principal residence indebtedness ($500,000). File 2009 taxes online for free This means that Kathy and Frank can only exclude $250,000 ($750,000 amount canceled minus $500,000 nonqualified debt) under the qualified principal residence indebtedness exclusion. File 2009 taxes online for free   Kathy and Frank do not elect to have the insolvency exclusion apply instead of the qualified principal residence exclusion. File 2009 taxes online for free Nonetheless, they can still apply the insolvency exclusion to the $500,000 nonqualified debt because it is not qualified principal residence indebtedness. File 2009 taxes online for free Kathy and Frank can exclude the remaining $500,000 canceled debt under the insolvency exclusion because they were insolvent immediately before the cancellation to the extent of $726,000. File 2009 taxes online for free Thus, Kathy and Frank check the boxes on lines 1b and 1e of Form 982 and enter $750,000 on line 2 ($250,000 excluded under the qualified principal residence indebtedness exclusion plus $500,000 excluded under the insolvency exclusion). File 2009 taxes online for free   Next, Kathy and Frank reduce their tax attributes using Part II of Form 982. File 2009 taxes online for free Because Kathy and Frank no longer own the home due to the foreclosure, Kathy and Frank have no remaining basis in the home at the time of the debt cancellation. File 2009 taxes online for free Thus, Kathy and Frank leave line 10b of Form 982 blank. File 2009 taxes online for free However, Kathy and Frank are also excluding nonqualified debt under the insolvency exclusion. File 2009 taxes online for free As a result, Kathy and Frank must reduce the basis of property they own based on the amount of canceled debt they are excluding from income under the insolvency rules. File 2009 taxes online for free Because Kathy and Frank have no tax attributes other than basis of personal-use property to reduce, Kathy and Frank figure the amount they must include on line 10a of Form 982 by taking the smallest of: The $46,000 bases of their personal-use property held at the beginning of 2014 ($16,000 basis in the car plus $30,000 basis in household furnishings), The $500,000 of the nonbusiness debt (other than qualified principal residence indebtedness) that they are excluding from income on line 2 of Form 982, or The $43,000 excess of the total bases of the property and the amount of money they held immediately after the cancellation over their total liabilities immediately after the cancellation ($15,000 in savings account plus $30,000 basis in household furnishings plus $16,000 adjusted basis in car minus $18,000 credit card debt). File 2009 taxes online for free Kathy and Frank enter $43,000 on Form 982, line 10a and reduce their bases in the car and the household furnishings in proportion to the total adjusted bases in all their property. File 2009 taxes online for free Kathy and Frank reduce the basis in the car by $14,956. File 2009 taxes online for free 52 ($43,000 x $16,000/$46,000). File 2009 taxes online for free And they reduce the basis in the household furnishings by $28,043. File 2009 taxes online for free 48 ($43,000 x $30,000/$46,000). File 2009 taxes online for free   Following are Kathy and Frank's sample forms and worksheets. File 2009 taxes online for free Frank and Kathy's 2013 Form 1099-C, Cancellation of Debt This image is too large to be displayed in the current screen. File 2009 taxes online for free Please click the link to view the image. File 2009 taxes online for free Form 1099-C, Cancellation of Debt Table 1-1. File 2009 taxes online for free Worksheet for Foreclosures and Repossessions (for Frank and Kathy Willow) Part 1. File 2009 taxes online for free Complete Part 1 only if you were personally liable for the debt (even if none of the debt was canceled). File 2009 taxes online for free Otherwise, go to Part 2. File 2009 taxes online for free 1. File 2009 taxes online for free 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 $1,750,000. File 2009 taxes online for free 00 2. File 2009 taxes online for free Enter the fair market value of the transferred property $1,750,000. File 2009 taxes online for free 00 3. File 2009 taxes online for free Ordinary income from the cancellation of debt upon foreclosure or repossession. File 2009 taxes online for free * Subtract line 2 from line 1. File 2009 taxes online for free If less than zero, enter zero. File 2009 taxes online for free Next, go to Part 2 $0. File 2009 taxes online for free 00 Part 2. File 2009 taxes online for free Gain or loss from foreclosure or repossession. File 2009 taxes online for free   4. File 2009 taxes online for free Enter the smaller of line 1 or line 2. File 2009 taxes online for free If you did not complete Part 1 (because you were not personally liable for the debt), enter the amount of outstanding debt immediately before the transfer of property. File 2009 taxes online for free $1,750,000. File 2009 taxes online for free 00 5. File 2009 taxes online for free Enter any proceeds you received from the foreclosure sale   6. File 2009 taxes online for free Add line 4 and line 5 $1,750,000. File 2009 taxes online for free 00 7. File 2009 taxes online for free Enter the adjusted basis of the transferred property $3,000,000. File 2009 taxes online for free 00 8. File 2009 taxes online for free Gain or loss from foreclosure or repossession. File 2009 taxes online for free Subtract line 7 from line 6 ($1,250,000. File 2009 taxes online for free 00) * The income may not be taxable. File 2009 taxes online for free See chapter 1 for more details. File 2009 taxes online for free    Insolvency Worksheet—Frank and Kathy Willow Date debt was canceled (mm/dd/yy) 12/26/13 Part I. File 2009 taxes online for free Total liabilities immediately before the cancellation (do not include the same liability in more than one category) Liabilities (debts) Amount Owed Immediately Before the Cancellation 1. File 2009 taxes online for free Credit card debt $ 18,000 2. File 2009 taxes online for free Mortgage(s) on real property (including first and second mortgages and home equity loans) (mortgage(s) can be on personal residence, any additional residence, or property held for investment or used in a trade or business) $ 750,000 3. File 2009 taxes online for free Car and other vehicle loans $ 4. File 2009 taxes online for free Medical bills owed $ 5. File 2009 taxes online for free Student loans $ 6. File 2009 taxes online for free Accrued or past-due mortgage interest $ 7. File 2009 taxes online for free Accrued or past-due real estate taxes $ 8. File 2009 taxes online for free Accrued or past-due utilities (water, gas, electric) $ 9. File 2009 taxes online for free Accrued or past-due child care costs $ 10. File 2009 taxes online for free Federal or state income taxes remaining due (for prior tax years) $ 11. File 2009 taxes online for free Judgments $ 12. File 2009 taxes online for free Business debts (including those owed as a sole proprietor or partner) $ 13. File 2009 taxes online for free Margin debt on stocks and other debt to purchase or secured by investment assets other than real property $ 14. File 2009 taxes online for free Other liabilities (debts) not included above $ 15. File 2009 taxes online for free Total liabilities immediately before the cancellation. File 2009 taxes online for free Add lines 1 through 14. File 2009 taxes online for free $ 768,000 Part II. File 2009 taxes online for free Fair market value (FMV) of assets owned immediately before the cancellation (do not include the FMV of the same asset in more than one category) Assets FMV Immediately Before  the Cancellation 16. File 2009 taxes online for free Cash and bank account balances $ 15,000 17. File 2009 taxes online for free Real property, including the value of land (can be main home, any additional home, or property held for investment or used in a trade or business) $ 18. File 2009 taxes online for free Cars and other vehicles $ 10,000 19. File 2009 taxes online for free Computers $ 20. File 2009 taxes online for free Household goods and furnishings (for example, appliances, electronics, furniture, etc. File 2009 taxes online for free ) $ 17,000 21. File 2009 taxes online for free Tools $ 22. File 2009 taxes online for free Jewelry $ 23. File 2009 taxes online for free Clothing $ 24. File 2009 taxes online for free Books $ 25. File 2009 taxes online for free Stocks and bonds $ 26. File 2009 taxes online for free Investments in coins, stamps, paintings, or other collectibles $ 27. File 2009 taxes online for free Firearms, sports, photographic, and other hobby equipment $ 28. File 2009 taxes online for free Interest in retirement accounts (IRA accounts, 401(k) accounts, and other retirement accounts) $ 29. File 2009 taxes online for free Interest in a pension plan $ 30. File 2009 taxes online for free Interest in education accounts $ 31. File 2009 taxes online for free Cash value of life insurance $ 32. File 2009 taxes online for free Security deposits with landlords, utilities, and others $ 33. File 2009 taxes online for free Interests in partnerships $ 34. File 2009 taxes online for free Value of investment in a business $ 35. File 2009 taxes online for free Other investments (for example, annuity contracts, guaranteed investment contracts, mutual funds, commodity accounts, interests in hedge funds, and options) $ 36. File 2009 taxes online for free Other assets not included above $ 37. File 2009 taxes online for free FMV of total assets immediately before the cancellation. File 2009 taxes online for free Add lines 16 through 36. File 2009 taxes online for free $ 42,000 Part III. File 2009 taxes online for free Insolvency 38. File 2009 taxes online for free Amount of Insolvency. File 2009 taxes online for free Subtract line 37 from line 15. File 2009 taxes online for free If zero or less, you are not insolvent. File 2009 taxes online for free $ 726,000    Frank and Kathy's Form 982 This image is too large to be displayed in the current screen. File 2009 taxes online for free Please click the link to view the image. File 2009 taxes online for free Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) Prev  Up  Next   Home   More Online Publications