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OC loss as income.

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You seem to be confusing sales tax and income tax. The sales tax which accompanies the purchase of goods and services goes to the state/county/city in which the purchase was made.

Your parents did not pay the CC debt they owed, the CC company charged off the account. In turn the CC is showing that write-off as income to your parents and have issued a 1099. Do a search on 1099, and you'll find a ton of information.

The positive outcome on this is that according to the many threads I have read on this, is that once issued a 1099 it makes it extremly difficult for a CA to then turn around and pursue collection of that debt. It also appears through reading the threads that in all likelihood, what your parents will pay in regards to income tax shold probably be lower than what they would have to shelled out to the CA/CC---unless of course they are numerous penalties and interest.

Just my two cents...and remember I'm a newb....so I could be way off base :D

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