Hello,
My wife and I received a CP2000 for a cancelled debt of a car loan (the car WAS NOT repossessed).
The facts:
The debt was my wife's debt from before we got married.
The car is still owned by the bank who gave my wife the loan.
The car loan debt was cancelled 10 years later when we were married and we were filling our taxes jointly.
I am trying to file for debt insolvency but at the time the debt was cancelled her assets were less than her liabilities but HR Block said I have to add my assets to her assets to make the calculation on Form 4681 which will make our assets MORE than our liabilities.
Can someone tell me If I have to add my assets or we just need to total her assets alone on that form?
Thank you
Are you working with someone from H&R Block? You should most likely trust their assessment.
From what you stated in your post, the IRS believes there was a canceled debt and it was taxable as income and H&R Block does as well. This could also be dependent upon the state in which you reside (i.e., community property).
There is no Form 4681, only a publication that contains a worksheet and I presume you are referring to that.
we don't know your situation, but perhaps to avoid combining assets and liabilities you each would have to file as married filing separately. ask the H&R people becuase you would end up paying higher taxes that would offset the benefits of MFS.
could not find anything specific when a joint return is filed. but even on a MFS return, her assets and liabilities would vary depending on whether you live in a community property state or not.