I'm a moonlight tax preparer. My day job was in tax for a few years and had access to tax research software, but now that I'm in revenue, I no longer have access to the company's checkpoint subscription.
I have 3 individual clients currently and can't justify spending money on my own subscription. 2 of my clients are simple, but one client filed for bankruptcy a few years ago and has been receiving huge 1099-Cs for cancelled student loans.
Other than google and irs.gov, I'm having a hard time coming up with good info. I believe he can probably claim an insolvency exemption to significantly reduce his tax bill, but I'm having a hard time finding anything authoritative on two issues:
1. He is very concerned that if he doesn't pay the tax, his co-signer will have to. An IRS pub indicates that this is not the case, but that isn't authoritative.
2. I know the general calculation for the insolvency exemption is based on debts and assets just prior to the cancellation of debt, but exactly how do you determine debt and assets? Are home furnishings and every other conceivable thing included in assets? How are the house and cars valued? etc. And when there are multiple debts that have been forgiven, how are they ordered, etc.
So, anyone have any tips on navigating things like this as a sole practitioner? Do I just need to refer the client to a firm with more resources? Is there a way to get a written answer from the IRS without throwing up a red flag and inviting an audit?
Thanks so much for your help!