1099c question
Date: Mon, 09/17/2007 - 00:57
A person calls the original credit card company and asks for a 1099c for the debt he can't pay. Then the 1099c arrives in the mail. The 1009c is filed with the IRS on a tax return. Now, the IRS owns the old written off debt. So, a debt buying company can not sue for this debt, if they find in a pile of old debts they have acquired. And, if the debt buyer has the debt listed on a credit report, they must remove it, because they do not own the debt. So, they can't report it. Besides, now the debt has a zero balance.
First of all, you usually do not just get a 1099c by calling the
First of all, you usually do not just get a 1099c by calling the creditor. A 1099c is reported by the creditor to you and the IRS in cases where all or a portion of the debt has been forgiven through a settlement agreement.
That said, if a 1099c is file, the debt is done...no money is owed or could be sought in the matter of that debt. The IRS does not "own" the debt either. What the 1099c does is report your forgiven debt as income to you, which you are required to pay taxes on. Now, if you fail to pay the taxes on a forgiven debt, you do still owe the IRS, which will pursue it heavily themselves!
One thing to note about 1099c forms...make sure you keep any and all copies of the settlement agreement and cancelled check handy for several years. I had one creditor mis-report the forgiven amount of a debt, and had to appeal to the IRS....the forgiven amount was just less than half the debt, but the creditor reported the full amount to the IRS as forgiven after I paid my agreed settlement amount of $2,500! I worked through a debt repair agency, so I did not have a copy of the actual payment, and I'm still fighting it! I have tried contacting the creditor and the repair agency for the information required to get this corrected, with no luck. I ended up losing most of last year's refund to cover what the IRS said I owed. I could still get it overturned, but at this point it is looking like more work than it is worth! I no longer owe anything to the IRS, and thinking that I should leave it alone as a lesson learned!
1099c are meant for debts which have been either cancelled or fo
1099c are meant for debts which have been either cancelled or forgiven. The IRS defines a number of identifying events which would deem that a debt has been cancelled, namely 1) the unpaid balance in an account that has been "legally settled for less than full balance", or 2) an unpaid balance that has not had any bona fide collection activity on the account for at least 3 years.
You cannot exactly call a creditor and request that a debt be cancelled. If they intend to collect, and they perform collection activity within 3 years, then they don't have to cancel it.
BUT under the IRS instructions, once they debt has been deemed as cancelled, the creditor should be sending you a 1099C. You would then be required to report that amount as income on your tax return in the year that it was cancelled. (Unless you have been adjudged insolvent by means of a bankruptcy proceeding).
When a debt is cancelled and 1099C issued, the IRS is not actually buying the debt and so they do not own it. But I will argue that a cancelled debt cannot be collected on in the future, since it is indeed cancelled. I think that if a debt buyer tries to sue over it, you could raise the fact that it was cancelled as a valid defense in court.
I am not quite sure what the ramifications are in regards to reporting the account to the credit bureau. I think that they may be able to report the fact that you had a delinquent account, and what the balance was that they charged off -- as long as they report a zero current balance.
The only think I know about that form is that if you settle a de
The only think I know about that form is that if you settle a debt and you save more than 600 dollars it is reported to the IRS as income and you need to report it on your taxes.
Why is this reported as income? Is it actually income? This conf
Why is this reported as income? Is it actually income? This confuses me! This is my for instance, I owed the original credit card company 4,400, then CACH purchased it for who knows how little! Now suddenly the debt jumps up to 9,400 so i'm trying to settle this now for way less than the 9,400. If they agree to this how does that constitute income? DOesn't seem fair to me or make any sense! Had i recieved any sort of goods for that amount then maybe but for them just to hike it up that high now i'm responsible for taxes on it? WTH?
:(
Ang
I can only guess at this one past what I already know. The reaso
I can only guess at this one past what I already know. The reason it is considered income is because it's a debt. It doesn't matter why it is the amount it is, it's just something you are supposed to pay back. So when you "save" more than 600 dollars by paying less than what is owed it is like have what you "saved" as income.
I sure dont' feel like i have saved anything! lol Now if i actua
I sure dont' feel like i have saved anything! lol Now if i actually owed this amt then ok but c'mon they can just pull a number out their ... ooppps! and it's considered income???
ha ha
Ang
It's not fair. Especialy in your case with what happened.
It's not fair. Especialy in your case with what happened.
Ang, I so understand your frustration there! I remember thinking
Ang, I so understand your frustration there! I remember thinking something similar when I was cleaning up my defaulted debt. Now, I if the settled amount was for less than the original principal minus fees and interest, sure I could understand it. I mean, say I bought $2,500 worth of stuff on a credit card...if I didn't make any payments, and the debt was forgiven for say $2,000, then that was $500 worth of stuff I basically had given to me. I would have no problem counting that as income.
However, all of the debts I settled, I settled for an amount more than what the original credit limit on my account was....meaning, there was no way I was being forgiven any portion I actually spent...I was simply being forgiven fees and interest. I wouldn't have gained anything from this had I not defaulted...this was simply money out of my pocket that would have gone into the bankers' pockets to make them richer. They are simply losing their profit. Why is it considered my income if what the creditor did was simply cut their profit, and agreed to settle for an amount that they could break even on? I mean, if that were the case, then we would have to pay tax on every item we buy that is on sale, right? It is basically the same idea....a store didn't sell all of their summer clothes, and it is now winter. So, to try to at least break even, they put it on sale, and cut their profit. Same thing, right? I don't have to claim on my taxes that I bought $200 worth of clothes for $75?
So why is it my income when the banks basically do the same thing? They can't get the debt paid with all of their junk added to it, so they decide to take a cut in profit to break even, but you pay the taxes on it? The only think I can figure is to counter act that fact that the debt in it's entirety is considered an "asset" to the company. If you owe a bank $5,109 in principle, fees and interest, the bank puts that entire $5,109 on the plus side of their assets. If the account is charged off, the creditor gets a tax break on that...see we are basically covering that tax break.
Of course, I have a problem with this as well. Say I bought my house for $100,000, and sold it a couple of years later for $75,000. Now, I would get a tax break for the $25,000 loss. However, does the buyer have to pay additional tax because of that? No!
So why do we have to pay taxes on the creditors' losses of profit, if we at least pay back an amount equal to what we borrowed in the first place?
Well and to top it off even if the amount were the exact amt i r
Well and to top it off even if the amount were the exact amt i recieved merchandise for haven't i already paid the taxes at time of purchase? Doesnt' seem fair to me also that the cc co gets a tax write off for the loss but we have to pay taxes yet again!
Ang
True...we are taxed when we get the money and when we spend the
True...we are taxed when we get the money and when we spend the money. That is, however, the same even if we used cash instead of credit to purchase the same goods.
However, in the case of having to pay taxes on the fees and interest a company decides to forgive an not charge? I guess it would similar to having to pay sales tax on the discounted portion of a good? I mean, the state can't say, "Okay, the MSRP on that sweater is $50, and the store decided to sell it to you for $35; however, we will still require you to pay sales tax on it as a $50 item." I'm sure if that happened, the people would stand up, and some court would find it unconstitutional. So why doesn't that happen with people who have to pay tax on forgiven fees and interest?
After three years is the collector no longer able to cancel the
After three years is the collector no longer able to cancel the debt?
If you know the debt is yours, and there is no way possible to pay it, can you offer the collector the opportunity to cancel it? It would be easier to pay taxes on the debt, than to pay the debt.
When the 1009c is issued, is it issued for the debt, including all the fees and interest, or just the original amount of the debt?
What percent of tax does tax payer pay, on a 1099c debt? Maybe 25%?
I'm not sure what u mean by "cancel" the debt. Original credito
I'm not sure what u mean by "cancel" the debt. Original creditors write off the debt but then sell it to a collectin agency and in turn they try to collect on it. ALso lots of times collectors can also sell the debt to other collectors and after 3 years they will sell it for pennies on the dollar... but they will try to collect on the original amt owed plus interest and fees. (doesn't mean they'll get it but they do try)
Hope this helps a little,
Ang
As Ang said, the original creditor will write off a debt, and se
As Ang said, the original creditor will write off a debt, and sell it to another entity for pennies on the dollar. That entity will make a few futile attempts, and sell it off again. This can go on until the day the debtor dies!
What there is a limit on is how long the creditor has from the time of default to sue you to get a judgment on the defaulted debt. This is the statute of limitations, and varies by state. Many collection agencies are banking on scaring you into a payment plan, because that starts the SOL over again.
The best way to handle things is to always request validation of the debt in writing. With all of the debt selling going on, if you really do want to take care of the debt, and have the fund to do so, you want to make sure that you are dealing with the correct entity, and that the amount they claim is valid.
The best way to handle tax on the debt is to account for the tax
The best way to handle tax on the debt is to account for the tax in your settlment offers. For example, if you defaulted $5,000 on a credit card and now the balance is $7,500 then you need to account for your tax bracket % rate times $2,500 at a minimum to break even. My high end tax bracket is close to 20% so if I were to settle the worst settlement offer I would accept would be $5,000 - .20 x (2,500) = 4,500. This means you settled for the amount you actually received and spent. In reality I would offer the CA less than that though. I would probably offer them $2,500 - $3,000 as a settlment in full for this example.
Is there any way to settle with the condition that u do not reci
Is there any way to settle with the condition that u do not recieve a 1099??
Just curious as i am in the process of settling today.
Ang
I'm not sure if you can stipulate that a 1099c is not filed with
I'm not sure if you can stipulate that a 1099c is not filed with your settlement. I worked with a debt repair organization to settle my debts, and this issue never came up. I do know that if the forgiven amount is less than $600, you don't have to claim it. I also have read somewhere that it is at the discretion of the company holding the debt to list interest and fees as forgiven amount or not...so you could potentially get away without a 1099c if you are settling for at least the amount your borrowed, and the creditor agrees to not report interest and fees as forgiven debt.
So do i mention this part of the settlement to them or just not
So do i mention this part of the settlement to them or just not bring it up? As u can tell i'm not good at negotiation! I hate confrontation... I just don't want it to come back and bite me at tax time! They already want more than their original amt to include atty fees, court costs and interest!
So all that wud be written off is charges they added on to begin with so do i ask them if this is forgiven or if i sud expect to get a 1099?
Confused,
Ang
I think with the amount that would be "forgiven" you should expe
I think with the amount that would be "forgiven" you should expect to get one in the mail around tax time.
There is certainly no harm in asking for that but I would assume
There is certainly no harm in asking for that but I would assume that one will be filed even if it is in the agreement to not file one. I do not think it is breaking the law if one is not filed although legally you would owe tax on the difference between what you spent and what you paid them even if one was not filed. For example, if I gave you 4,000 and you paid me back 2,000 then the other 2,000 would be considered income and taxable. Technicaly the dollar amount makes no difference in this rule even if the amount is under the $600 amount. If the amount is under $600 then the credit card does not have to file but it is still income and legally you are suppose to report it although must people probably would not. If the IRS does not know the transaction took place it would be easy to not pay the tax on it.
Ok so if the amount owed is 9,400 but then they added court cost
Ok so if the amount owed is 9,400 but then they added court costs, atty fees and interest now it jumps to 14,000 but i settle for 10,000 then i owe taxes on the fees?
This just does NOT make sense to me!
Thanks in Advance,
Ang
I think most people would agree with you Ang that it is BS the w
I think most people would agree with you Ang that it is BS the way it works but unfortunately it is all legal. More than likely that company will report a 4,000 loss (14,000-10,000) to the IRS via a 1099c and you will have to pay the IRS tax on that 4,000 when in reality they actually made a profit. In your case though the CA had you by the balls because they had a judgment against you and you have the assets for them to collect easily. If the company gets around to filing the 1099c it will cost you another 800 in taxes assuming your high bracket is 20%. Maybe you could challenge the 1099c once it is filed with the IRS claiming that they are trying to show a loss when in fact there was a gain but I doubt it would get you anywhere. Hopefully the company will not file or the wait 3 years before filing so you can keep your money longer.
Well in the SIF letter there is NO mention of a 1099, is that no
Well in the SIF letter there is NO mention of a 1099, is that normal? Is it normally not mentioned? ANother 800 bux, good grief have i learned a VERY expensive lesson here!
SIGHS,
Ang
If you dispute the amount due on the account, like I owed $1,000
If you dispute the amount due on the account, like I owed $1,000.00 and dispute the additional $5,000 of late fees and penalties, you can use that dispute to fight the additional tax. The IRS may not tax you if you dispute even owing the amount forgiven.
Furthermore, if you can get proof of debt collection violations, make the debt collector PAY off the debt, so that nothing is forgiven and reported on a 1099C.
One last thing, my understanding is that you won't have to pay taxes on forgiven debt if you can show you did not have the means to pay it and your liabilities exceeded your assets at the time of the debt forgiveness. See you tax advisor for details.
Best of luck.
texasrobinhood.com
The government taxes cancelled debts for the same reason it taxe
The government taxes cancelled debts for the same reason it taxes a waitresses' tips ... it's greedy and wants every penny it can get.
Accounting-wise, all that interest and fees the creditor charges are originally reported as income by the creditor at the time those fees/interest are assessed. Now enter bad debt/cancelled debt. ... If a creditor could collect every single penny owed to it, then they would be reporting A LOT of income and would therefore pay a lot of tax. BUT since the largest expense a creditor has is its writeoffs, and billions of dollars have to be written off every year by the creditors, the government sees this as billions of dollars that is isn't collecting tax on.
In the governments' eyes, if you legally owe $10K but you settle for $6K, then that is $4K worth of "income" you received by not having to pay it back. If you had paid it, then the creditor would be paying tax. Since you're not paying it, they want you to pay tax on it.
Now, it really isn't up to the creditor to decide if they want to send you a 1099C or not. The government says ANY cancellation of debt over $600 requires a 1099C to be filed. If a creditor doesn't send them out, and then happens to be audited by the IRS, they could get in big trouble. That would be the same as your employer not reporting your wages just because they didn't feel like it.
Your best bet, like Guest above said, is to dispute the amount claimed on your 1099C. But I think that if the government finds it was a legal balance you did in fact owe, you will be stuck with it.
I totally agree the whole deal is not fair. But I also think taxing a waitress' tips is unfair. Not much I can do about it.
OK, Here is a different 1099C question for everyone and help me
OK,
Here is a different 1099C question for everyone and help me out here: I work for a huge hospital chain which recently settled a class action suit over its shoddy time system. The problem is and was that it nickels and dimes employees over legit overtime and rounding of time to the nearest minute, etc.
Every hourly employee (thousands, trust me) got a check recently. My share of the pie was $130, which was taxed, as it should be. My actual check was for $91--which checked out after deducting the taxes. I also got a 1099c for 39 bucks. After running the numbers several times and calling the IRS over it, I fail to see where I actually got the money.
How do I dispute this? I have already written the law firm and have gotten nowhere, thanks.
Where does this 39 bux come from?? Wow i'm lost! Well this mor
Where does this 39 bux come from?? Wow i'm lost! Well this morning i asked the atty's assistant, prolly a collector, (rolls my eyes) if i were gonna be getting a 1099 after i paid them. He acted like he had NEVER heard of such a thing! He acted like i didn't know what the heck i was talking about so i just dropped it! No need to give him somethign to think about! ha ha
Ang
A 1099 would not be mentioned in a settlement letter. They prob
A 1099 would not be mentioned in a settlement letter. They probably will file one although I have had debts in the past that I settled not filed. I know it doesn????????t really help you now but as I stated earlier the best way to handle the tax is work the number out in the settlement. Another option is to make them remove all the fees, penalties and interest all together from your account but this is very difficult to do once the account has been charged off, left the creditor and gone to a CA. This solution is similar to what guest stated but I think it needs to be done before you settle. I have a hard time believing that you could fight taxes on a forgiven debt by claiming you were disputing the amount reported when all the documentation shows that you settled on that given amount. You would need to get the settlement offer changed to prove the dispute I think. For example if a CA says you owe 10k and you say you owe 5k and you settle for 7.5k then the offer would need to say the amount owed was 7.5k and settled in full for 7.5k otherwise you will be paying taxes on 2.5k if they do not change the amount they are reporting, they file a 1099 for that amount and you have nothing in writing stating differently.
Hey Ang! The 39 bucks were spelled out in our settlement letter
Hey Ang!
The 39 bucks were spelled out in our settlement letter as interest and penalties that were charged. We were told that 70 percent of the settlement was to be treated as wages and taxed accordingly, which is fine with me. But for the life of me, and maybe my brain is just dusty from lack of use, I can't see where in the heck I got the 39 bucks, although I sure have a 1099c for it!! And also, if they did include that with our settlements, they taxed it at 40 percent!! WTH???????
Wow, how confusing! Do u have an tax person? Maybe they cud exp
Wow, how confusing! Do u have an tax person? Maybe they cud explain it or even figure it out for u!
Cuz i'm at a total loss here!
But nothing new, CACH has my brain hurting! I really really can't stand these people!
Ang
Oh, honey I am sorry. Are you still dealing with those clowns??
Oh, honey I am sorry. Are you still dealing with those clowns?? I hope things will come out OK for you!!
Yea trying to "GIVE" them my money now and now they're him hawin
Yea trying to "GIVE" them my money now and now they're him hawing about how long it will take to clear the bank.... like that's MY problem? I don't freakin own the bank! (excuse my french)
They're driving me bonkers here!
If we dont' have this settled today then i'll see them in court on Monday!
Ang
So tell them to walk it down to the freakin' bank and call for a
So tell them to walk it down to the freakin' bank and call for a check verification!! Geez, do we have to do their jobs, too??
Well guess we do! He still hasnt' called me back... i'm SO sick
Well guess we do! He still hasnt' called me back... i'm SO sick of thier BS, I really sud just take my chances with a judge cuz working with them is a nightmare!
Ang
1099c credit card
What happens if you receive a 1099c form,file it on your taxes as income,but then a year or two later you pay off said debt?? Are you able to claim it as a deduction some how on your current year tax return? ie: defaulted on a $5000.00 credit card,issuing bank filed a 1099c form and you claimed it as income but then a year later paid the debt in full.
They should have to file these 1099's in the year that the charg
They should have to file these 1099's in the year that the charged off happened or not have the opportunity to file them at all, this seems to be common anymore, they should be penalized for not filing them on time, the consumer would be penalized if they did not file taxes on time, why should it not be the same for these companies.
Once a company files a 1099c, you file it on your tax returns an
Once a company files a 1099c, you file it on your tax returns and that's it. It is a debt forgiveness form, for tax filing purposes it's almost like they paid it out to you (whatever it is you owed them) so it's taken as a cost for business and it gets reported on your taxes.
Ok here is a question. Sometimes you offer a settlement just to
Ok here is a question. Sometimes you offer a settlement just to not have to deal with the company any further, in the wording of the letter it states that:
this payment constitutes payment in full of the account, no other monies owed, account closed with a zero balance.
So how could a company file a 1099c if there is no remaining balance? There must be a way to word the settlement to state that what you are paying is what is owed and nothing further is owed. If the agreement was that both parties agreed that say $500 is owed, rather then the $800 they were trying to say is owed...then couldn't you avoid the 1099c that way? If they then file it, you could goto the IRS and tell them that the $800 was never owed, that only $500 was owed.....
If it is agreed to be paid in full on a settlement then there wo
If it is agreed to be paid in full on a settlement then there would not be anything to report on a 1099c, and they would be bound by your contract.
great! Then that is the way I will go from now on. :)
great! Then that is the way I will go from now on. :)
FORM 1099C
I AM HAVING SOME OF THE SAME PROBLEMS WITH A 1099C BEING FILE IN 2007 WHEN INFACT THE CAR WAS REPO IN 2001, RESOLDED IN 2001 AND CHARGED OFF IN 2001. NOW A CA FILED A 1099 TO IRS IN 2007, IRS CONTACTED ME 2 MONTHS AGO ABOUT UNREPORTED EARNING. WHAT CAN I DO NOW OTHER THAN PAYING TAXES TO IRS
You can file an ammended return but you will have to pay taxes o
You can file an ammended return but you will have to pay taxes on it
1099c
I don't want to do an ammended return because I think the time limit for the creditor to file the 1099 is past due. In 2001 I had lost my job and could not pay, my assest was lower that the debt so the company canceled. I think someone that bought the contact decided to filled the 1099 years later in 2007-----Is that legal
"According to the IRS regulations, a creditor has up to 3 years
"According to the IRS regulations, a creditor has up to 3 years after the last ??? collection activity??? to issue a 1099c."
I found the above from an article on another web site. You might want to look on the IRS web site, using the search function, to find out more.
I lend my credit cards to another person
This person incurred in about $100K debt, I realized I did something really stupid lending my credit cards to my best friend, the plan was to fix her house and put it for sale, then pay off my cards, the house lost the value, and nobody is buying, she is not paying the debt and my credit fico is extremely low, I decided to talk to credit card companies to try to pay off this debts, they ask for lump sums of 50% of the amount of debt, I could probably do it, but I'm worry about the 1099c income form, there is anyway I can say that this is her debt, she is willing to sign papers with a lawyer.