Most short sellers are getting 1099-C's in the mail and this issue has been put out on the table.

I spoke to a CPA last year to get some clarification and learned that a person is not responsible for paying taxes on the 1099-C deficiency amount if the home is an owner occupied with original acquisition indebtedness when they short sale.

I've also been told that the short sales involving non-owner occupied homes and cash-out loans will be given 1099-C's as well but if the IRS form 982 is filled out and there is a negative net worth, no income taxes will be due.

But, if there is a positive net worth, income taxes will be due on the amount equal to the positive net worth amount.

With so many investors from out of state short-selling their homes in Gilbert and Chandler, AZ, if an investor had other properties that had equity, thus creating a positive net worth, why wouldn't a trustee's sale be better if the bank ends up buying it at sherriff's sale for what is owed?

I was not able to get an answer on this from three different CPA's.  Are a bunch of investors going to get audited because they didn't pay taxes on 1099-C income for short-sales on investment properties?

I have been very successful with short sale situations but have avoided any investor with a positive net worth for fear of giving uneducated advice.  Usually referring them to a bankruptcy attorney or accountant.  Any insight on this would be helpful?