My friend Tom called me up from the office of his tax preparer last week. He asked me if I had any documentation to demonstrate that he wouldn’t owe IRS big bucks from his short sale we successfully completed in January 2018.

The proverbial stomach knot began tightening inside of me. My first thought was that his tax preparer was wrongfully worrying my client. My next thought was, “Didn’t the feds extend the 2007 Mortgage Forgiveness Act (MFA)?” Surely if they hadn’t, I would have read not just one, but numerous articles about that.

I saw and read nothing.

I recalled the transaction well. Tom was about $250,000 underwater (owing that amount on two loans over and above the market value) in his Scottsdale home. The lender, Chase Bank ended up forgiving both mortgage debts following the short sale. That was not in question.

The $64,000 question, which incidentally could have been what Tom might have owed IRS, did IRS forgive the debt? The IRS websites states:

If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.

I told Tom I’d need to get back to him. I immediately went online to the IRS or to find articles that the MFA had been extended into 2018, as we had closed on his home January of 2018. I saw nothing like that. I couldn’t believe it. Was I responsible for