Every mortgage loan has two parts, a note and a deed of trust.  The note is your debt to the mortgage company.  The deed of trust is the document secures the debt with your home. 

If you get behind on your payments, the mortgage company may foreclose on your home and sell it at an auction.  The difference between your loan amount and what the mortgage company sold it for can create a deficiency. (For example, if you have a $300,000 mortgage loan and the house sells for $200,000 at a foreclosure auction, there is a $100,000 deficiency.)

 The mortgage company may choose to forgive your debt.  In our example, the mortgage company could forgive $100,000 deficiency after the foreclosure sale.

When the mortgage company chooses to forgive a loan, it normally is a taxable event.  In tax terms, it is called discharge of indebtedness income or cancellation of indebtedness income.  The borrower who no longer has to repay the loan must pay tax on that amount.  In our example the taxpayer would be deemed to have received receive $100,000 of income.

Because of the recent foreclosure problems, congress has passed the Mortgage Forgiveness Debt Relief Act of 2007.  This act allows taxpayers to exclude any discharge of indebtedness income on their principal residence.  This exception does not apply to second homes or investment properties.

For more information on how Robinson & Henry can help taxpayers nationwide with their tax problems, visit us at www.wlhenry.com or contact us at (303) 688-0944.  Robinson & Henry has extensive experience in defending and advising homeowners facing foreclosures including in Rule 120 proceedings, loan modifications, and bankruptcy.  Visit our foreclosure defense website at http://www.blockcoloradoforeclosure.com/

The IRS recently released its annual enforcement figures for its 2008 fiscal year.   The bottom line–$56.4 billion in enforcement revenue collected.

Collecting the billions required the IRS to issue over 2.6 million tax levies (IRS garnishments and bank levies) and 750,000 tax liens on taxpayers’ property.  Many of these levies and liens occurred after taxpayers failed to file their tax returns or pay tax. 

Tax levies and lien normally occur after numerous notices from the IRS.  Taxpayers can stop tax levies and tax liens from occurring by negotiating with the IRS.  In certain circumstances, penalties, interest and the underlying tax liability can be significantly reduced. 

For more information, go to www.wlhenry.com or contact us at (303) 952-5064 to learn how we can help you with your tax debt problems.   Visit our tax blog at http://wlhenry.com/tb/.

Yes.  Failing to file taxes is a serious problem.  Under Colorado law, for example, a person who “willfully attempts in any manner to evade or defeat” any tax or the payment thereof is guilty of a class 5 felony pursuant to Colorado Revised Statute 39-21-118.   So, what does that mean:  that means that you can be sentenced to three years in jail or fined up to $100,000 in some cases. 

Visit www.wlhenry.com for more information or contact us at (303) 952-5064 to learn more.