Definition and Purpose of Form 982
Form 982, titled "Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment)," is an Internal Revenue Service (IRS) document used by taxpayers to report the exclusion of income related to the discharge of indebtedness. This complicated tax process often involves scenarios such as debt forgiveness, bankruptcy, insolvency, and certain types of real property business indebtedness. Using Form 982 allows taxpayers to report the reduction of tax credits, purchase price adjustments, and basis reductions, which are crucial when determining tax liabilities.
Scenarios Involving Form 982
- Insolvency: If a taxpayer is insolvent, defined as having liabilities exceeding assets just before the discharge of debt, they can use Form 982 to exclude this income from gross income.
- Bankruptcy: Debtors who have discharged debts under Title 11 of the United States Code (bankruptcy) file this form to report the exclusion.
- Qualified Farm or Real Property Indebtedness: Specific tax breaks apply to certain discharged debts related to farming operations or certain real estate contexts.
How to Use Form 982 in 2017
Taxpayers need to fill out Form 982 for the 2017 tax year to ensure compliance with IRS rules on debt discharge. The document is to be attached to the taxpayer's annual federal tax return. Proper completion of this form requires a thorough understanding of the taxpayer's financial situation, types of debt forgiven, and how the cancellation of such debt affects their tax attributes.
Steps for Completion
- Gather Financial Data: Collect information about the discharged debt, including amounts, the reason for forgiveness, any assets involved, and the applicable insolvency or bankruptcy status.
- Complete the Form: Fill out the necessary sections of Form 982, detailing the amount of discharged debt and corresponding exclusions.
- Attach to Tax Return: Form 982 must be attached to the taxpayer’s federal income tax return (Form 1040) for it to be valid.
Obtaining Form 982 for 2017
The 2017 Form 982 is accessible through the IRS website, where taxpayers can download it in PDF format. The form can also be obtained by requesting a mailed paper copy directly from the IRS or visiting a local IRS office.
Methods of Access
- Online: Download from the IRS official website.
- Mail or In-Person: Request a copy via mail or pick up at an IRS office for those who prefer paper versions.
- Tax Software: Use tax preparation software that includes IRS forms to fill out Form 982 digitally.
Filing Deadlines and Important Dates
Form 982 should be submitted along with the taxpayer's annual tax return. Typically, this falls on April 15 unless an extension has been filed. If April 15 lands on a weekend or public holiday, the deadline is usually extended to the next business day.
Critical Considerations
- Deadlines: Meeting filing deadlines is crucial to avoid penalties.
- Extensions: Taxpayers can seek extensions by filing Form 4868.
Key Elements of Form 982
Form 982 is composed of several critical sections, each requiring precise completion to ensure compliance with IRS laws.
Principal Sections
- Part I: Specifies the type of discharge and applicable IRS code sections used by the taxpayer.
- Part II: Requires the taxpayer to report specific amounts including discharged debt and the corresponding tax credits affected.
- Part III: Focuses on the amount of reduced tax attributes such as net operating losses or capital loss carryovers.
Important Terms Related to Form 982
Understanding key terms helps in accurately completing Form 982 and ensuring the taxpayer's financial situation is correctly reflected.
Definitions
- Gross Income: Any income earned that must be reported to the IRS unless excluded by law.
- Insolvency: A financial state where liabilities exceed assets immediately before the debt was discharged.
- Debt Discharge: Cancellation or forgiveness of debt by a lender, which can affect income calculations.
Legal Use of Form 982
Form 982 is governed by various sections of IRS tax code, making correct usage legally obligatory to abide by tax laws and regulations.
Compliance and Legal Framework
- Section 108: Provides the legal basis for excluding certain cancelled debts from taxable income.
- Document Retention: Keep copies of Form 982 and substantiating documents for at least three years, as IRS audits may require evidence of claims.
IRS Guidelines for Form 982
The IRS provides extensive guidelines for the correct completion and filing of Form 982 to ensure compliance. Detailed instructions are available that explain the nuances of exclusions, reductions, and the overall effect on tax attributes. Understanding these guidelines is essential for accurate tax reporting and avoidance of potential audits or penalties.
