1099-c

What is the name of your state? Ia

We are in the process of filing Ch 7 BK and just recently received a 1099-C for a charged off debt that will be included in the BK. I need to know if we are to include it in our 2002 taxes and pay income tax on it, or do we ignore it and let the CH 7 take care of it. I asked our BK attorney, he didn't have any answers, except to say we should set up a payment schedule with IRS and that payment would be included as part of our expenses for the BK. Any advice would be very helpful, thank you.

A debt that is discharged in BK or while you are insolvent is not included in income. Presumably you were insolvent (debts > assets, bills > income) when they charged off the debt.

Just to make sure I understand correctly. I do nothing with the 1099-C I received, do I file it with the BK, approx. in a month?

You shouldn't need to list the 1099-C, since the creditor has said that you are released from the debt. You just argue that you were insolvent if the IRS challenges you not including the money in your return.

forgiven income is still taxable as income to the fed.

Not if the debt was forgiven because the taxpayer was insolvent or in bankruptcy when the debt was forgiven. Otherwise everyone who declared BK would have to include their charged off debts in income!

I want to revise my earlier answer on reporting the 1099-C: Put the income on a shcedule D and make the basis = the charged off amount.