A financial counselor is working with a client who received a $14,000 credit card settlement for $9,000 (a $5,000 reduction). The client's total liabilities at the time of settlement were $62,000 and their total assets were $44,000. The creditor issues a Form 1099-C. How should the counselor advise the client regarding the tax consequences?
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A
The client must report the full $5,000 as ordinary income on their federal tax return with no available exclusions
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B
The client should invoke the insolvency exclusion under IRC §108, as they were insolvent by $18,000 at the time of settlement, allowing them to exclude the entire $5,000 from gross income
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C
The client can exclude only up to $3,000 of the $5,000 from income because the IRS caps the insolvency exclusion at $3,000 per tax year
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D
The 1099-C is only informational and the client has no reporting obligation unless the cancelled debt exceeds $25,000