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Elif Turkseven
Level 1
October 7, 2023
Question

Debt Cancellation

  • October 7, 2023
  • 1 reply
  • 3 views

Hi everyone, this is the first time i am preparing form 1120 for an insolvent c corp. Since the client is insolvent I understand that he should not pay any taxes due to debt cancellation. I have generated form 982 as well. I just did not understand whether i should include the discharged debt on form 1120 as ''other income'' ? If i do it then a tax is calculated on it even though i generated the form 982. Thank you for help.

 

Elif,

 

 

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1 reply

sjrcpa
sjrcpa
Level 15
October 7, 2023

You can exclude from taxable income COD to the extent the taxpayer is insolvent. The 982 is informational and does not link to/automatically exclude from the tax return.

If the COD is not taxable, don't enter it as other income.

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