I just sent this letter to Senators Kennedy and Kerry and Congressman Michael Capuano:
It has come to my attention that Congress is currently considering the “Mortgage Cancellation Tax Relief Act of 2007” (HR 1876). This bill, if enacted into law, would amend the Tax Code to exclude debt forgiveness on a primary residence’s mortgage from the definition of “income.”
I am writing to urge you to oppose this bill.
The IRS Offer In Compromise program allows taxpayers facing tax liabilities they cannot pay to negotiate reductions. Furthermore, the IRS allows long-term payment plans for taxpayers facing tax liabilities they cannot pay immediately. These options are reasonable and sufficient aid for taxpayers facing tax liabilities resulting from mortgage debt forgiveness.
The Offer In Compromise and payment plan programs have safeguards to ensure that the taxpayers who take advantage of them are truly in need. It is far more appropriate to apply such safeguards on a case-by-case basis than to forgive tax debt across the board for all taxpayers who receive mortgage debt forgiveness.
If passed, this bill will introduce yet a loophole into the Tax Code which will undoubtedly be taken advantage of by scam artists and fraudsters, placing an increased burden on the IRS and other Federal agencies to detect, investigate and prosecute such fraud.
Supporters of this bill claim that mortgage debt forgiveness is not “real income.” In fact, the debt being forgiven is money that was given to the debtor to help pay for his/her house, and as such it is in fact real income which should be taxed. Every dollar of income tax that is forgiven must be paid by other taxpayers like me, added to the national debt or taken away from other deserving Federal programs.
Congress’s time would be better spent passing legislation prohibiting predatory lending practices that strand taxpayers with mortgages they cannot pay.