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1099 dispute/suit


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I'm new to the board.

One month ago I was served papers notifying me that I was being sued by my former employer for $1750.00. The guy from the company heading the charge has a real ego trip and was not happy that I left the company.

The problem is that they sent me a 1099-MISC for $2500 (which represented the entire loan; $1750 is the balance after a $750 write-off by the company). This cost me over $800 in taxes that I have already filed.

I replied to the judge in writing something to the effect that the suit was groundless because the amount can either be a debt or income - but not both, pretty confidently. I've not heard back from the judge (today will be two weeks).

Last night I received a call from one of my larger creditors and for the first time when going over all the options they have if this becomes a charged off account, told me that they would send me a 1099. Now, I am not so sure that my research in responding to the judge was correct, and am afraid that if all my creditors do this for 2004, my income from 1099's will exceed our household income, costing a fortune in taxes.

I've searched this site pretty thoroughly but have not found anything on this topic. Is there a loophole that would allow companies to send 1099's claiming debts as income, and then still allowing them to collect on it?

From TX

Thanks.

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As usual, I'm confused. Was the $2500 from your ex-employer a loan? An advance? What? It does make a difference.

And as for the 1099's from creditors, I'm a little confused on that also. I know that supposedly OCs can issue a 1099 for charge-offs, which in effect becomes income to you, but what I don't understand is how that can still be collectable.

I'll be interested in more educated answers...

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This is a murky area, and one that creditors should be called on more. You are right about being overcharged on your 1099 - the $800 should have been added in.

The problem is, if you call the IRS on this, they are not held liable for things they tell you on the phone, so if someone tells you the wrong thing, oh well... I was pretty stunned when my accountant told me this.

I might turn them in, there is a standard reward offered by the IRS for leads leading to convictions.

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Over several years, several employees had checks issued to us that were added to our company loan balance of which we normally paid @$50/payroll. At the time of my departure, the ego jerk and I had a private meeting discussing the details of the balance - no one else was present. The amount is valid, but I did not necessarily agree to any repayment terms.

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The company gives you a check for $1000 for a down pymt on a house for ex. You agree to pay it out at $50/payroll until it is paid in full. 4 months later, you need $500 because you didn't have enough for closing. The check's written and the $500 is added to the balance of the $1000 that you have not yet paid. Your payments do not change, only your balance does. Does this help?

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Okay, better. It was indeed a so-called payroll loan by the company...which you should indeed receive a 1099 for, because taxes were not withheld at the time the check was issued. Now, what do you mean by a "$750 write-off"...is that the total of what you paid back from the $50 per pay?

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The company agreed to "forgive" $750 of the $2500, leaving me with a balance of $1750. In other words, they wrote off $750 as if it never was part of the balance. It was my impression, they should have sent me the 1099 for the $750, not the $2500.

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The write-off was not in writing.

Okay, so I should have received the 1099. But in claiming the debt as income (1099 MISC Income Stmt as is is called), don't they in fact forfeit their right to collect, sinced it is no longer a debt?

And what about this credit card company that threatened to do the same thing. Is that legal?

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Okay...so your ex-employer is suing you to try to collect $2500 which they gave you as a payroll loan for which they have already issued a 1099. I guess I would agree with what you told the judge (in writing, I assume)...its either a loan which they can try to collect, or its an untaxed payroll advance...it can't be both. And, if its a loan, my company would have withheld the balance from your last payroll checks. If there wasn't enough in those checks to cover it, we would have considered it income to the employee and issued a 1099. If they didn't see it that way, they shouldn't have given you a 1099. For this one, I'd wait to see what the judge says, although you still might want to check with the IRS.

As for the CC charge offs..that's an entirely different matter.

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