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Asked 4/13/2010

Pension loan used to pay creditors-filed chapt 7-insolvent

We used pension funds to pay creditors, yet ended up filing chapt 7 bankruptcy.
Attorney said we were insolvent so we did not claim the 1099R-noting such on our taxes.
Now IRS wants tax on this "income"
If we used it to pay creditors and were insolvent aren't we exempt from tax on it?

 
 
 
 
Answers

Answer 1/2 - Submitted 4/13/2010

No. Insolvency only gets you out of paying tax on Cancellation of Debt income. It doesn't affect the taxability of retirement income.

 
 

Answer 2/2 - Submitted 4/13/2010

Oh no, and regardless of insolvency, this tax liability will not go away.

Have you done up an amended return to see what the damage is yet? Hopefully some tax was withheld when the disbursement was done to soften the blow a bit.

 
 
 
 
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