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You need to explain to the IRS you actually were insolvent during the method of discussion. The best way to do so for you to fill the government form 982: Reduction of Tax Attributes Due to release of Indebtedness. Alternately, you can also attach a letter with your tax return giving a close break up of the total debts and also the total assets that this is. If you don't address 1099-C from the IRS, the government will file a Federal tax Lien and actions is actually going to taken done to in way of interests and penalties could be painful!

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