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I have heard that owners of foreclosed homes in 2008 have not to pay the tax (1099c) even if they have a debt on their foreclosed home to banks( Because of its first or second loans, As you know IRS will assume any forgiven debt as an Income). Is this right? Any idea?
I have not heard anything like that. If your creditor forgives debt worth $600 or more, you need to file 1099C form. However, there would be a deduction of $500 for single income tax filers and $1,000 for joint tax filers. However, if your house has not been foreclosed, there are provisions in the "Foreclosure prevention Act of 2008" to avoid foreclosure.
Yes, the IRS considers the forgiven debt as part of your income because the creditor reports the debt as a loss to the IRS. However, as Carol said, only if the forgiven gift exceeds $600, you need to pay taxes on that income that exceeds $600, else not.