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Can Debt Buyer Company Issue 1099C for Old Debt

Submitted by on Thu, 12/25/2008 - 02:24
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Can a junk debt buyer company issue an IRS form 1099C for an old debt several years past the sol and lastpayment/deliquency?

If the debt's last payment to the original creditor, was five years ago, can a 1099C be issued?


This is what I have been reading:




I posted this a few months ago but will repost again. The IRS has for quite some time required banks government entities to issue a 1099C for debt that was forgiven. The IRS thinking has been that if you borrowed money and never paid back the money, then that borrowing should be taxed as income.

Most charged-off debt is sold by original creditors to a debt buyer at a discount. The debt buyer then attempts to collect the debt. Around 2005 or so, there was a change in the IRS instructions that for the first time required debt buyers to issue a 1099c. The Debt Buyers Association was very much opposed to this requirement and filed suit against the IRS (DBA v Snow). The DBA lost that litigation in 2006.

Debt Buyers hate the idea of issuing a 1099c. It is not only an administrative expense but a litigation risk and the DB is subject to fairly burdensome IRS compliance audits.

The holder of the debt has no vote in the matter. They are required to issue the 1099c. The IRS has established a list of eight different situations under which a 1099c must be issued. Those triggers are:

1. A discharge in bankruptcy under Title 11 of the U.S. Code for business or investment debt

2. A cancellation or extinguishment making the debt unenforceable in a receivership, foreclosure, or similar federal or state court proceeding.

3. A cancellation or extinguishment when the statute of limitations for collecting the debt expires, or when the statutory period for filing a claim or beginning a deficiency judgment proceeding expires. Expiration of the statute of limitations is an identifiable event only when a debtor's affirmative statute of limitations defense is upheld in a final judgment or decision of a court and the appeal period has expired.

4. A cancellation or extinguishment when the creditor elects foreclosure remedies that by law end or bar the creditor's right to collect the debt. This event applies to a mortgage lender or holder who is barred by local law from pursuing debt collection after a ???????power of sale??????? in the mortgage or deed of trust is exercised.

5. A cancellation or extinguishment due to a probate or similar proceeding.

6. A discharge of indebtedness under an agreement between the creditor and the debtor to cancel the debt at less than full consideration.

7. A discharge of indebtedness because of a decision or a defined policy of the creditor to discontinue collection activity and cancel the debt. A creditor's defined policy can be in writing or an established business practice of the creditor. A creditor's practice to stop collection activity and abandon a debt when a particular nonpayment period expires is a defined policy.

8. The expiration of nonpayment testing period. This event occurs when the creditor has not received a payment on the debt during the testing period. The testing period is a 36-month period ending on December 31 plus any time when the creditor was precluded from collection activity by a stay in bankruptcy or similar bar under state or local law. The creditor can rebut the occurrence of this identifiable event if:
1. The creditor (or a third-party collection agency) has engaged in significant bona fide collection activity during the 12-month period ending on December 31 or
2. Facts and circumstances that exist on January 31 following the end of the 36-month period indicate that the debt was not canceled.

Significant bona fide collection activity does not include nominal or ministerial collection action, such as an automated mailing. Facts and circumstances indicating that a debt was not canceled include the existence of a lien relating to the debt (up to the value of the security) or the sale or packaging for sale of the debt by the creditor.

It is hard to know which event triggered the issuance of your 1099c -- it could easily be #3 or #7. Trigger #8 is the biggie that is going to the driver of a great deal of this activity.

The DBA and the ACA have asked the IRS for guidance on all sorts of questions about how they are to prepare the 1099c. There are probably a thousand questions about what if this or what if that. Right now, no one really has any answers. The IRS has said they will probably respond to these questions sometime in 2008.

Until then, all you can do is look to the IRS instructions for guidance.


Now, I'll share some personal thoughts and perspectives and guesses:

1. The issuance of the 1099 is not voluntary. The DB is subject to penalty for failure to issue the 1099c if it hits one of those trigger events.

2. I think the most debate will be in regard to debts that have not been validated. Forgetting for a minute that there is no consensus for how to define validation, there is absolutely no out in the IRS instructions for the DB to get around issuing a 1099 for a debt that has been disputed.

3. A debt that has been disputed and not validated does not mean that the debt never existed. It only means that the DB did not jump through certain administrative hoops. Those might be meaningful hoops for some purposes but those hoops are not grounds for failing to issue the 1099c. I think the DB would gladly bury those 1099s in a box in the basement if they could get away with it. I do not think the IRS is going to let them get away with it come time for the compliance audit.

4. There are zillions of debts in the portfolios of debt buyers where the DB has lost contact with the debtor. To me this is a very similar situation to the zillions of bank accounts where the bank has lost contact with the depositor. The IRS has a pretty consistent policy that I think will be applied in both situations -- send the 1099c to the address you got. The ones that get returned will go in a box to show the auditors. Otherwise, the IRS will then match up the IRS copy of the 1099 to the tax returns using the social security number. The IRS is very good at this. The taxpayer will get a bill for additional taxes for a 1099 they never knew about.

5. I recently had a interesting discussion with a fellow who thought that the issuance of a 1099c was continuing collection activity and thus an fdcpa violation. I have a hard time making that one fit from a logic perspective. Continuing collection activity means some sort of action intended to provide leverage or gain to the creditor in contravention of the FDCPA. I don't see a 1099 falling into that category -- it does not provide leverage or gain to the creditor. Certainly, it is not a voluntary action. It would be very difficult for me to see a federal judge punishing a DB for doing exactly what he was told to do by the IRS.

6. The IRS has been absolutely clear that a 1099c should not be issued in cases of identity theft. Not even the IRS expects someone to pay taxes on a benefit they never received. Anyone who has been a victim needs to be sure they had jumped through all the hoops with their creditors.

7. The area where everyone will be sharpening their teeth will be the notion of a "fraudulent 1099c". The adjective fraudulent is defined as: characterized by, involving, or proceeding from fraud, as actions, enterprise, methods, or gains. When people use the term fraudulent I think they really mean "in error" or most likely "I don't agree because no one ever proved to me (fill in the blank)".

8. As I read the instructions, the short version of what the IRS says about defining the amount of the debt to be reported on the 1099 is "everything less accrued interest and other penalties and fees" -- which says to me principal. But, I can think of several different ways to define principal for an old credit card. Which one? No one knows yet. The DBA and ACA are cautiously hopeful that the IRS will give them a definition they can work with. This could be a challenge as many of the older debts have no real history any longer and it is not exactly clear what part of the balance is principal and what part is something else. I have no idea what the DBs will do if the IRS does not provide guidance on this question.

9. Of course, nowhere in the IRS instruction does it specify that reporting the debt as forgiven means that it cannot still be collected or sold to someone else and collected. The General Counsel of the IRS has pretty explicitly stated that the issuance of the 1099c does not prohibit subsequent collection of the debt. Unsaid, but I think, logical, is the notion that a subsequent collection would trigger an amended or corrected 1099c to reflect the subsequent event.


I know this was probably a whole lot more than you wanted. Regardless, there will be many more folks following in your steps and dealing with this same issue. The quicker people get to thinking about this, the more helpful it will be.


Submitted by NASCAR_Devil on Fri, 12/26/2008 - 04:20

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I didn't think a 1099c could be issued unless a settlement was agreed upon. I think you could dispute a 1099c with the IRS by taking the position that the debt is not yours. The IRS might be difficult to fight but I would hold firm that someone else must have made the charges in your name unless they or the junk debt buyer had solid evidence that the debt is yours. I would think a debt buyer would have to prove the debt was yours and then you settle for some lesser amount before any 1099c would be issued or could be enforced by the IRS. It seems like to me if that was not the case then junk debt buyers could abuse the system by grossly inflating all their debt portfolio and then 1099c a bunch of them to offset their profit margins for the year.

For example, someone might open a credit card and actually spend $1,000 on it. This would be the true dolar benefit the borower received. If that person then defaults and eventually a junk debt buyer buys that account for $10 but inflates the amount owed to $10,000 and proceeds to 1099c some random person for $10,000 that they say owes the money then they just made their tax rate in savings against any profit they made for the year. If the debt buyers rate is 25% then they just showed a $2,000 loss when really they only lost $10. They borrower in turn would owe a 15% rate on average in tax to the IRS on $10,000 which is $1500.


Submitted by DOLLARSandSINCE on Fri, 12/26/2008 - 14:05

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that cannot happen, at least on paper, because the IRS requires the 1099c to be filed on the principal amount only, not on interest. So, they can claim whatever they want to claim as far as what is owed, but they need to be able to prove the breakdown anyways.

The real problem there is going to be the junk debt buyers, because they often cannot prove what the principal balance actually is on the accounts.


Submitted by skydivr7673 on Fri, 12/26/2008 - 15:57

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The news info article says this:

The IRS and Treasury Department agreed it is appropriate to limit the application of the 36-month rule to entities for which the rule was originally intended in order to avoid premature reporting of cancellation of debt.

As a result, the new regulations eliminate this triggering requirement for debt purchasers and other entities. Most debt purchasers will no longer be required to file a Form 1099-C based on the sole fact payment was not made on the debt within a 36-month period. Debt purchasers are still required to file a Form 1099-C if another triggering event occurs.

The temporary regulations also provide clarification on filing requirements for debt purchasers in previous tax years. The regulations state debt purchasers who were required to file a Form 1099-C in a tax year prior to 2008 because of the 36-month rule, but failed to do so, the date of discharge of the debt is the first triggering event that occurred after 2007.


Does that mean: A debt purchaser will not need to file a 1099-c for non payment for the 36 months they have owned the debt? or 36 months debt is past due? What about very old debts from long ago, such as 1997? What about old debts from the 90s way past SOL? Are people going to be issued 1099-c from the debt purchaser?


I am confused about the sentence:
the date of discharge of the debt is the first triggering event that occurred after 2007


I am glad to be able to get helpful information here.


Submitted by on Fri, 12/26/2008 - 22:06

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It would be interesting to see an example where a 1099c has been issued on any debt that was not actually settled and all parties agreed. I think it is unlikely that the IRS is going to start accepting 1099c's on old debts that are not settled especially 10 year old junk debts. It seems to me that it puts the IRS in the position of proving and/or validating debts. I think it would be very easy to dispute an IRS attempt to collect tax on that debt if one was willing to fight the IRS. Simply taking the postion that the debt was never yours should suffice since the IRS would have no supporting documentation other than a filled out 1099c with a soc# on it. At that point one could hold firm that the charges and account was never made by you. Then it comes down to if the IRS agent feels like sticking it to you or not.


Submitted by DOLLARSandSINCE on Mon, 12/29/2008 - 14:08

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A 1099c can not be issued for a debt past the 7 years the IRS allows to audit previous tax years. That means, now in 2009, a 1009c could be issued for 2002 and later, but not 2001 and earlier, because more than 7 tax years have past.


Submitted by on Fri, 01/23/2009 - 21:05

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I had a vehicle repossessed in 2003 and just received a 1099-c. I never agreed to their offers to settle for a lesser amount and was not employed when the vehicle was repossessed. Should I argue this with the IRS? I had no idea 5years later this would be issued. What should I do? I have more than paid for this, as any loan I've taken out sine has charged me outrageous finance charges, way beyond what I would have paid if this wouldn't have happened.


Submitted by on Wed, 02/04/2009 - 19:52

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I owed a debt of close to 90,000 on credit cards 41 months ago. I have not made a payment since Oct. 2005. I lost everything i owned including money inherited. I have had no talks with the creditors since Jan 2006 when I told them i had almost died from a blood infection and could not pay. They keep calling my son who will not tell them where I am. They have threaten to put them in jail and take what they own and also have threaten me with jail. I have been homeless for a year and get help from my stepson. Now they want him to turn me over to the police. I am on SS now and they claim they will take all of that. My fear is if they file a 1099c will the IRS take my SS. Should I file bankruptcy I have seen 3 attorneys and all say some different. Please help me, if I end my life can the IRS go after my x she didn't sign or use the cards in fact she didn't know I had them.


Submitted by on Wed, 03/11/2009 - 17:46

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Please don't even consider taking your life. that is NEVER an option and can only hurt the ones you love. I know because I am in a similar situation with my health rapidly going downhill and the bills mounting.

You, nor your family can NOT be put in jail....not for debt. It is not only morally wrong for these collectors to say such things, it is also illegal.

What you need to do send out DV letters and dispute the debts. Regardless, they could not legally issue you a 1099c unless you settled, or they sued you and you claimed SOL (or they won a judgment and forgave the debt). Even if they sue you, they can't touch your SSI income.

Only if it actually got to the IRS as a 1099-c could the IRS take your SSI, but as some have said before..if it is unvalidated debt, you could fight the IRS...it sounds scary, but it is your right.

Please seek some help, your family needs you.


Submitted by goldenbast on Wed, 03/11/2009 - 20:44

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Quote:

Originally Posted by Anonymous
A 1099c can not be issued for a debt past the 7 years the IRS allows to audit previous tax years. That means, now in 2009, a 1009c could be issued for 2002 and later, but not 2001 and earlier, because more than 7 tax years have past.

Would you please forward this information regarding 7 years, as I have a debt that is not mine, that has reared its' head from 1993! Portfolio Recovery Associates are bottom feeders that are donig this to holders. Where is the government for the people? SOL mean ZERO in essence, collection of debt can be for life. This is ridiculous, it is not murder! [EMAIL="orchid4sue@yahoo.com"]orchid4sue@yahoo.com[/EMAIL]


Submitted by on Sat, 01/23/2010 - 07:40

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hostage - you are incorrect. just because a debt is SOL doesnt mean you dont owe it. it also doesnt mean they cant attempt to collect on it (ie call you, send letters etc..). What it DOES mean is they cant take legal actions against you (sue you) to collect on it.


Submitted by on Sun, 01/24/2010 - 06:42

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Quote:

Originally Posted by Anonymous
A 1099c can not be issued for a debt past the 7 years the IRS allows to audit previous tax years. That means, now in 2009, a 1009c could be issued for 2002 and later, but not 2001 and earlier, because more than 7 tax years have past.

What is the supporting document(s) that verify your statement above


Submitted by on Mon, 04/12/2010 - 10:27

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I settled a debt with First USA for $2500 in 05/2002. The debt was originally,$3600,unemployeed for months,with fees and interest debt came to $4777. It came off my credit report last year,May. I am now on Social Security. I applied for a checking account with Chase Bank, and a credit card for overdraft protection. And to have my SS check deposited into my account. I had to put $100. down to open it, and then they gave me a $100 for opening it. However, they denied me the credit card, stating that, they saw that I had a "charge off" with First USA bank , which "they now own". And they are saying it was opened with Chase bank which it wasn't in 1998. and they have the date wrong for the charge off as November 2002. I just recieved a letter from Chase bank saying that,"This letter is in regards to your recent contact with us regarding the account and receipt of a 1099-C. ( Which is a lie, I was denied the over-draft credit card with Chase and was told I could have full disclosure as to why. And a copy of my credit report again) "At this time, it's determined that the 1099-C is correct.
So, back then there was no law saying they had to send a 1099-C, and there was no mention of it at the time and one was never sent at the time either. I just don't know what this means, really, I know they are way past the statute of limitations. But,
as nasty as these banks can be, I am wondering what to do about this. I am very concerned now about having my SS check deposited in their bank?
Can anyone advise me what to do? My credit was excellent, and now this. I live in senior housing and if my income goes up, my rent goes up....what should I do?


Submitted by on Sat, 06/19/2010 - 17:56

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My original creditor charged off my debt in late 2006. I never received a 1099-C. I have spoken to other people in the same situation and they have never received one when I explained to them what it is. Could this all be a little exaggerated?


Submitted by on Thu, 09/30/2010 - 11:24

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Correction: The reason why I ask this is because the username who often discusses this and kindly provides information (on at least 2 different forums) is always named Nascar. Maybe it's just a coincidence. I do appreciate the info all the same


Submitted by on Thu, 09/30/2010 - 11:29

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I received a letter from a collection company telling me that the credit card company was going to forgive part of my loan. Like others here, I have health and vision problems which now make me unable to work. The amount i would still own is more than i can pay and i don't know how i would even pay the taxes on it. I had initally been advised by legal aid not to file bankrupcy because of possible new debt from the health problems and because i am judgement proof (which means i don't own anything/have anything of value for them to take). with this possible new threat of writing off the debt and having to file taxes on the write off, i may go ahead and file bankrucy. I am waiting for the attorney at legal aid to get back to me about the whole 1099c thing and what will happen. If i had known my health would get so bad, i would have made different choices. I am trying to forgive myself for not being all-knowing and hoping for the positive outcome from the efforts I had been making for my future.


Submitted by on Thu, 09/30/2010 - 18:55

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Sativa, I personally think this is all a little bit blown out of proportion. It is VERY rare for an entity other than a mortgage holder or an Original Creditor to send a 1099-C even though it is required. Even then I've never known anyone to get one of these. I don't think the IRS has any way to enforce it because they don't have a database of delinquent accounts, there must be millions. Correct me if I'm wrong. Don't let a few people who cut and paste IRS rules and try to alarm others of some impending legal/financial hassle just waiting to show up in their mail box ruin your sleep. Some of these internet "experts" have fetishes with these things and can't find anything better to do than get into these tedious explanations on things that probably have no consequence to us. So don't worry it probably won't effect you.

You are financial insolvent so if you did get one you just claim insolvency in the year that you receive the 1099-C which is important to keep in mind


Submitted by on Sat, 10/02/2010 - 22:18

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Nascar i don't think you read the orginal posters attachment. it says:

"the new regulations eliminate this triggering requirement for debt purchasers and other entities. Most debt purchasers will no longer be required to file a Form 1099-C based on the sole fact payment was not made on the debt within a 36-month period. Debt purchasers are still required to file a Form 1099-C if another triggering event occurs"


He wasbn't asking what a 1099-C was. You wasted a lot of space on this thread when the answer was in the original post.


Submitted by on Sun, 05/01/2011 - 10:46

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And whose behind the government? The State

And whose behind the State? Wealth class interests

The State exists to do nothing but advance the interests of free market capitalism through the tax system, legal system, police and Capitalist wars. Karl Marx viewed taxes as yet another way that the Bourgeois (free market) society extracts surplus value from those that create value in society, namely the working classes and poor. The government, for the most part (not entirely), is an apendage of Private, free market, entrprenuerial, corporate moneyed interests. It's called the Dicatorship of Democracy. Every President was more or less a CEO.


Submitted by on Sun, 05/01/2011 - 11:22

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Most people don't realize that Socialists want an abolishment of the tax system which was created by the wealthy classes to extract wealth from the population for their own enrichment. The marketing of Credit Cards to the public was accelerated in response to a Crisis in Capitalism in order to solve the effective demand problem at the end of the 1970's. If people really understood that Credit Cards are only one way that they are being exploited by the Capitalist class (only to enrich the bank accounts of a less than 1% of the US population) they would never use a CC again. .


Submitted by on Sun, 05/01/2011 - 11:37

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As suspected, there have been tax cases against the IRS about 1099C reporting, so the Tax Court has sorted through some of these 1099C issues. There is hope on old 1099C debt and inaccurate reporting on 1099C. The two cases below have to do with timing of the reporting, and the consumer won against the IRS. These are recent cases and hold some weight. Take a look:
http://www.wscpa.org/Content/39754.aspx
Gaffney v. Commissioner, TC Summary Opinion 2010-128, 8/30/10
Kleber v. Commissioner, TC Memo 2011-233, 9/28/11


Submitted by hatdance on Mon, 04/02/2012 - 19:06

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