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On mission from another forum.


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By way of history, a junk debt buyer tried to collect a phony debt from me years ago. Thanks to help from this forum, I was able to not only beat them off, they caught some ire and embarrassment from my State AG. And even better, their legal staff had to respond which probably cost them more than they tried and failed to collect. And honor satisfied I have not paid enough attention to changing issues in the debt collection world.

But now the issue has come up in another forum about the grey areas of the 1099-c. I know that there is a fairly new IRS ruling on who must issue a 1099-c which somewhat binds OC's who forgive debt in amounts exceeding $600. But I am not up to date on if it is voluntary or mandatory for junk debt buyers. And last I heard some junk debt buying trade group was suing to prevent the IRS ruling from applying to junk debt buyers. And for that matter, what legal recourse someone has if they feel a 1099-c has been fraudulently issued.

Can someone update me.

Thanks.

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I don't think the courts and the IRS have completely resolved all that yet.

Last I heard, when the OC writes off a debt and sells it to the JDB, they claim a charge against accrued income for the difference between what they claimed as accrued income (theoretically, what you owe) and what the JDB paid for it. They're supposed to issue a 1099c to cover that. Its unclear whether they're required to send you a copy.

The debtor on the other is expected to claim as income the entire amount of the debt...even if its less than $600.

There were some cases agrued that said that buy paying taxes on the debt it was essentially assigned to the IRS...and therefore could not be collected by the JDB (which is why the JDB's are against the IRS on this one).

Like I said, I don't think we've heard the end of it yet...

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At the risk of being guilty of hijacking this thread, there's a 1099c question I've been trying to find the answer to.

In a couple of instances I've seen remarks that the amount on the 1099c is for the principal forgiven. If this is true, I would take this to mean interest, late fees, over-limit fees, etc, would not be included in the amount "forgiven" on the 1099c. Then it follows that a JDB could only file a correct 1099c if they have a complete accounting of the debt in question, which means they would have been able to provide it in response to a DV, which they usually can't, and so on.

So, are taxes only owed on the forgiven principal?

Does anyone out there know where to find an authoritative answer?

Thanks and apologies.

DH

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Thank you to those that responded. I now have my updates. Although it was years ago, my hatred of junk debt buyers are the same as they have always been. The mere possibility that junk debt buyers could pervert the IRS still horrifies me.

I think the IRS perverted the JDB's. After my bank account was levied last year, I called the IRS and could hear other agents in the background asking:

"Can you borrow from friends or family?'

"Can you take a loan against your 401K?"

"Can you put the balance on a credit card?"

Same questions I've been asked by CA's but with the full weight and might of the US Government behind them.

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I think the IRS perverted the JDB's. After my bank account was levied last year, I called the IRS and could hear other agents in the background asking:

"Can you borrow from friends or family?'

"Can you take a loan against your 401K?"

"Can you put the balance on a credit card?"

Same questions I've been asked by CA's but with the full weight and might of the US Government behind them.

Bite your tongue... I'm currently being audited on my 2005 return. Although I must say that they lady I'm working with is a very nice person and so far all has gone well.

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In a couple of instances I've seen remarks that the amount on the 1099c is for the principal forgiven.
The 1099c form has two boxes...one for the amount forgiven, and another for the amount interest included in the other. Its unclear as to which box the taxpayer is required to pay taxes on.
Then it follows that a JDB could only file a correct 1099c if they have a complete accounting of the debt in question, which means they would have been able to provide it in response to a DV, which they usually can't, and so on.

Last I heard, the JDB's association had a court case going against the IRS trying to prevent a JDB from being required to issue a 1099c at all. There supposedly is another court case regarding if an OC issues a 1099c, can they sell the balance to a JDB...or, does that effectively transfer the debt to the IRS.

The courts will have to work it out...

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The 1099c form has two boxes...one for the amount forgiven, and another for the amount interest included in the other. Its unclear as to which box the taxpayer is required to pay taxes on.

Last I heard, the JDB's association had a court case going against the IRS trying to prevent a JDB from being required to issue a 1099c at all. There supposedly is another court case regarding if an OC issues a 1099c, can they sell the balance to a JDB...or, does that effectively transfer the debt to the IRS.

The courts will have to work it out...

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In terms of a little personal research, the court case you referred to, junkdebt assoc v Snow

http://www.brokencredit.com/wp-content/uploads/2007/08/DebtBuyersvSnow.pdf

But it looks like the court ducked and kicked the case, and no one is pushing it. And as we all know, with junk debt buyers, rules are made to be subverted.

Its just hard to believe, an entire year and no progress.

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There's another thread going on about the same thing at: http://www.debt-consolidation-credit-repair-service.com/forums/showthread.php?t=280088

I posted a link I found at http://www.taxworkbook.com/files/200...idualFINAL.pdf that has a good explanation of the whole 1099c vs Form 982 thing. I don't know the source well enough to trust everything they say...but...it seems to be on the right track.

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