Dealing With Income Tax Implications Of Home Mortgage Debt Cancellation Drives Some Foreclosed Homeowners To Non-Profit Taxpayer Clinics For Help

In Tucson, Arizona, the Tucson Citizen reports:

• The Tucson Low Income Taxpayer Clinic is seeing more foreclosure clients(1) as more homeowners tackle the tax issues that go along with owning and then losing a home. "We always saw a couple in the last couple (of) years, but not like now," said Liz Thomey, program director for the Tucson clinic, [...]. "We're seeing a lot more."

• The tax clinic operates all year and actually does less business during tax season, Thomey said. The clinic is primarily for those who: (1) Have back taxes to figure out and pay, (2) Need legal assistance to help deal with the Internal Revenue Service or set up payment plans, (3) Need to figure out other complicated tax problems.

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• "[The clinic] is not to do your taxes, but to get help if you have tax problems," she said. Thomey added that recent changes to tax laws regarding foreclosures can make it confusing for homeowners to sort out which taxes they have and haven't paid. [...] There are three clinics in Arizona: in Tucson, Window Rock and Phoenix. [Go here to contact a Low Income Taxpayer Clinic (LITC) in Arizona].

For the story, see Foreclosures push people to tax clinic (may require free registration).

See also IRS Publication 4681: Canceled Debts, Foreclosures, Reposessions and Abandonments.

For LITC clinics throughout the country, see IRS Publication 4134 - Low Income Taxpayer Clinic List (listed by state).(2)

(1) My guess is that qualified homeowners who have had a portion of their home mortgage loan cancelled by a lender as a result of a "short sale" or loan modification are also making use of the LITC service.

(2) According to IRS Publication 4134, while the LITCs receive partial funding from the IRS, LITCs, their employees, and their volunteers are completely independent of, and are not associated with, the federal government. These clinics are operated by nonprofit organizations or academic institutions (ie. law schools & business schools). Qualified taxpayers can get help from a LITC either for free or at a nominal cost.