Tax Dictionary – Insolvency
A taxpayer is insolvent when his or her total liabilities exceed his or her total assets.
More from H&R Block
You are considered insolvent by the IRS if you owe more than the value of your assets.
If you receive a Form 1099-C, Cancellation of Debt from a credit card company or other lender who canceled or forgave your debt with them, you will need to report the amount they canceled on your tax return. You will need to report the amount shown on your Form 1099-C.
If you were considered insolvent immediately before the debt was canceled, you may be able to exclude from income on your return, the amount your liabilities exceed your assets. Example: You have $25,000 in credit card debt. Your assets total $15,000. You can exclude up to $10,000 in canceled debt from your income. Any amount above $10,000 will have to be reported as income on your return.
Received an IRS notice about your Form 1099-C? Learn how to handle an IRS underreporter inquiry.
Get the facts from H&R Block about the widely available but little-known IRS penalty relief option called first-time penalty abatement.
There was not sufficient funds in your checking account to cover your monthly payment. Learn more about IRS notice CP166 from the tax experts at H&R Block.
Learn more about notice CP05A, why you received it, and how to handle an IRS CP05A notice with help from the tax experts at H&R Block.
Learn more about notice LT75, why you received it, and how to handle an IRS bill for unpaid tax with help from the tax experts at H&R Block.