Tax help on Foreclosure 1099-C

I believe this is a double-posting. My answer to your other post was as follows: What you need to do is to take this, along with your other tax information, to your accountant or return preparer. The issue here is that the discharged debt is taxable income unless an exception applies. In your case, it sounds as if the s-corporation was the debtor. If that is the case, and the debt has been forgiven, then in the first instance that income from the debt discharge is income to the s-corporation. However, as you know, the s-corp's income passes through to the shareholders - i.e., you - which means that you will have to report your distributive share of the discharged debt income. Now comes the potentially difficult point: the primary exception to the requirement to include the discharged debt as income is the so-called "insolvency exception" - i.e., to the extent that the debtor is insolvent, the discharged debt is not taxable. The problem: the determination of whether the exception applies is made at the shareholder level, not the s-corp level, which means that unless you personally meet the insolvency exception based on your own personal financials, then you must report the discharged debt as income, even if the s-corporation itself was hopelessly insolvent. The only way to work through all of this is to take all the information to an accountant who can go through it with you and work out how it has to be treated for tax purposes.