Debt Settlement - Taxes

Yes, u are responsible for paying the taxes on the total amount that is settled for. Moreless, when you pay the amount of the settlement and then the taxes on it, you are really paying just about the full balance.

I would stay away from them. They don't have a BBB record and it seems like they've been in business for only a couple of months. Go with somebody reputable if you want to do settlement.

My understanding of this is you pay the amount that was left over from the settlement. Say you owe 2000 and they settle for 500 then you are taxed on 1500. They dont even send the letters unless its over 500. You can always go to http://www.irs.gov/ and look it up. KYSIDE38

I checked with the BBB and they are registered with them as well as TASC and USOBA. How did you come to the conclusion that they have only been in business for a few months check two? They have a company start date of 1987 with Dunn And Bradstreet and settlement letters in their brochure since 89'. Do you have any information on the taxes that could be correct?

Any thing written off over 600.00 will be reported to the IRS and you will have to pay taxes on. I believe the exception to this is if you are in bankruptcy and declared insolvent

No, FDN Solutions if neither in BBB, nor a member of USOBA, nor a member of TASC (which doesn't even matter). If you have evidence to the contrary, please show it. Their website and all other information points to them existing for only a few months.

What types of accts are you talking about that are turned over to the IRS??

I was looking to be able to post a comment or send a thank you to the team at FDN. I signed up for the program reluctantly about 8 months ago. I only had about 9k worth of bills and one of them being B of A settled for a really low amount. They called me and told me about the offer and asked if I could come up with an extra 225.00 on top of my 262 payment and i said yes they told me if i could i would be debt free. They kept there promise and if David in negotiations reads this Thanks So Much

If the company you owe chooses to file form 1099 to the IRS on the difference between what they say you owe and what you settle for then you will be liable for the tax on that portion at your income bracket. For example, if a CC charged off your account at 10,000 including all fees and penalties and you settle for 4,000 then you will have to pay tax on 6,000 at your tax bracket if the CC files form 1099 with the IRS. Your tax bracket is based on your annual income so what you would owe depends on what you earned during the year the CC filed the 1099. You can negotiate with the CC for complete deletion from your credit report and no filing of a 1099 if they will accept it in the offer. Make sure to get your offer in writing prior to paying anything and do not give them access to your checking account or use post dated checks.

DollarsandSince - how do you negotiate the no filing of a 1099? I thought by law they had to do that, are you saying that is not the case? I didn't notice the sample letters that had this statement? Do you have any other information on this?

Sorry forgot to log in, that is my post above about not getting a 1099, so any info would be great.

Tks

My understanding of form 1099 is that it is used as a vehicle for a creditor to create write offs for themselves by showing a loss from a non paying debtor. These losses include fictional losses due to excessive interest, late fees, over the limit fess and other fees and penalties. This is money that they never actually lost and you never received but they make it look like they lost it. I am not aware of any law that says a creditor is required to file form 1099 but tax law would require a tax payer to pay tax on the amount of money they actually received and never paid back if you received form 1099 or not. I think one could easily argue that they did not owe tax on all the other crap that the CC Company tacks on. It is already bad enough that one can not write off credit card interest paid. Here is a direct quote from the 1099 direction page.

???????If a federal government agency, certain agencies connected with the Federal Government, financial institution, credit union, or an organization having a significant trade or business of lending money (such as a finance or credit card company) cancels or forgives a debt you owe of $600 or more, this form must be provided to you. Generally, if you are an individual, you must include all canceled amounts, even if less than $600, on the ???????Other income??????? line of Form 1040. If you are a corporation, partnership, or other entity, report the canceled debt on your tax return. See the instructions for your tax
return.???????

According to the 1099-C directions above the CC is suppose to file form 1099 but I do not think there is a law that agrees with this. It is technically a form of income though. At this point it becomes a question of ethics. Many people create tax write offs that they should not get. Many people drive 75 in a posted 65 MPH zone too. I have settled a few debts in the past were no form 1099 was filed and I did not pay tax on the difference. It is kind of equivalent to being paid in cash. If the cash transaction is never recorded then no audit would ever see the transaction as income.

I think it will come down to who you are trying to settle with. If it is a large corporation then they probably automatically file form 1099 on the charged off balance and I doubt you will have much success in getting them to not file but there is no harm in asking or pushing for only the amount borrowed being submitted. You can negotiate full deletion from all credit reports though.

Thanks so much for the info, I'm dealing with a large corp so I don't think I'll have much success with the tax thing but I am pushing for deletion.

I have a current debt that I am in the validation process on. If they can validate then I will settle but I am going to push for full deletion and no 1099. If they insist on the 1099 I am going to push for an audit of my account to delete all fees and interest and a lower settlement lump sum payment than what they offered. Let me attach some hard numbers that directly relates to my case as an example of why they want to file a 1099.

The following is the Credit Card Company bottom line. My wife borrowed roughly $4500 without my knowledge and I found out about it after it was charged off. The charged off amount is $7,500. This means they inflated the value by $3,000 more than what they actually loaned me. By filing a 1099 they get to subtract that loss directly from their profit which means they save at least 20% of that loss in taxes or $600. This company sent me a settlement offer for $3,800 or roughly 50% supposedly, which means a 1099 would show a $3,700 loss which saves them $740. This means that if they gave me $4,500 and they saved $740 then their bottom line was $3,760. That is why they offered a settlement of $3,800. They actually lose no money in the deal.

The following is my bottom line. My overall tax bracket averages to about 16%. If they file a 1099 showing a loss of $3,700 that means I would pay $600 extra in taxes. A settlement of $3,800 actually means I pay $4,400 to settle. This means that so called great settlement offer of 50% of the value is actually BS. I really only save $100 and my credit gets trashed for 7 years, the Credit Card Company loses nothing and the IRS makes $600 when they really should only get 16% of the difference of $4,500 and $3,800 or roughly $100. So you see the only one that loses in this deal is me.

Now for the settlement I am going to push for. I want to settle for $2,500 lump sum with no 1099 or a 1099 only from $2,500 to $4,500 and full deletion from my credit report. Their bottom line would be 20% of $2,000 plus $2,500 which equals $2,900 on a $4,500 debt. My bottom line would be 16% of $2,000 plus $2,500 which equals $2,800 on a $4,500 debt. This means I settled for 55% before tax or 60% of what was owed after tax.