Insolvency, 1099 debt forgiveness and future taxes

[Kathryn K.]

I have a co-worker who did a deed in lieu on a rental property and subsequently received a 1099 for the difference between what the bank sold it for and what she owed on it, which was 144K. In order to avoid huge tax consequences, her CPA filed for insolvency. The CPA said that the amount (144K) would be applied to any capital gains received if she eventually sold her primary residence at a profit ten years down the road.

Can anyone explain this? Does this mean she owes the 144K if she makes a profit on her primary residence or does this mean she owes tax on it if she makes a profit in the future?

Another question is what if she shortsales, forecloses or does a deed in lieu on her primary residence and buys another primary residence in the future? Will this 144K "follow" her to that residence also? How many years does this hang around affecting her potential to profit in the future?

Thanks to anyone who can shed some light on this subject. I'm hearing conflicting information from different sources.