Form 982 Insolvency worksheet

[Chooch305]

I was given an upfront award attached to a promissory note that required me to stay with the company for 9 years in order to keep money,

What does this actually mean? Well let’s say the upfront award (loan) is $1,000,000 amortized over 10 years. In this case, the $1,000,000 is paid to you shortly after joining, the company attaches it to a promissory note, but the money is considered a loan for tax purposes. There was a bonus agreement where, as  long as I remained within the firm, payments would be made on my behalf to pay down the loan. Amortizing the loan Annually over 10 years.

If I was given $1,000,000 upfront to join a firm over a 10 year term and left after 2 years I would have to repay the $800,000.00 

I left after 2 years and was forced to file Chapter 7 bankruptcy after investment losses. I received a w-2 for the remaining balance of the promissory note (loan) after it was Canceled due to insolvency in Bankruptcy court.  How do I use form 982 to offset the promissory note on my Taxes? 

[DaveF1006]

To clarify, was the amount of your W2 the equivalent of $200,000 that you paid down or the remaining $800,000?

[Chooch305]

The Remaining Balance. 

[Chooch305]

The Remaining Balance 

[DaveF1006]

Instead of you paying the remaining balance, it appears your company forgave your loan and then issued the W2 for the remaining amount of the promissory note to be reported as income on your tax return.

To file a 982, there must be a 1099C issued for the cancellation of debt for a non-business debt. In the case with your employer, this is strictly business and might not qualify as debt relief due to bankruptcy.

This evolves into a legal matter, which we are not permitted to comment on. You may wish to consult with your bankruptcy attorney for further assistance.

[Chooch305]

I filed Chapter 7 Bankruptcy because I was Insolvent. The court canceled the debt. They can still issue as Income? 

[Vanessa A]

In general, if you are insolvent cancelled debt is not taxable.  However, as @DaveF1006 stated, this is not typical debt and we cannot give legal advice only tax advice.  Since they issued the cancelled portion on a W2, it does not fall under the typical cancelled debt for tax purposes.  It becomes a legal matter with your ex-employer.  You should discuss this with your bankruptcy attorney.  It may be that the employer should have entered the debt on a 1099-C or they may have legal standing to put it on a W2.  Your bankruptcy attorney or a local tax attorney would be the best source for advice here.