BeatingMS

Write offs & 1099s

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Hi:)++

I was wondering if a creditor writes off a card, they don't sue and the balance is off my cr after seven years, do you still get a 1099? If the answer is here I’m going blind trying to find it?xbugeyesx

Thanks everybody!

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Most likely, if they were going to issue a 1099, they would have done so by now.

IMHO, don't borrow trouble. Why worry about that which has not happened after 7 years.....you'll give yourself an ulcer!

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According to the IRS regs, a creditor has up to 3 years after the last " collection activity" to issue a 1099c. You, of course, are responsible for paying taxes in the year in which that activity occurred. So, if the creditor stopped trying to collect 3 years ago, they can issue you a 1099c for 2005, on which you'll not only owe taxes, but penalty and interest. If they sell the debt to a JDB, then it becomes the JDB's responsibility.

Some "debt fixers" claim that all you have to do is file for "insolvency" an the IRS will look the other way. The bad news is, you have to be insolvent at the time the 1099c is issued...not when the debt was "forgiven".

If the amount of this debt was sizable, you might want to think about calling the OC and demanding your 1099c so you can get the taxes taken care of...

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It will be 3 yrs in May 2009. I have no income except social security disability. My husband has income but no responsibility for that card. We have a mtg balance of 108k from 120k loan. Both cars are paid for but each have over 130,000 miles on them and are over 5 yrs old. No other assets. Would I be considered judgement proof? Can you tell me more about "insolvency"? BTW, what does IMHO stand for?

Thanks everyone!

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Its likely you are judgement proof...you'd need a lawyer to tell you that...and that probably won't protect you from the IRS. As to insolvency (at least the way the IRS sees it) go to www.IRS.gov and search on "insolvency". I think its publication 906 you want, but, my memory has holes in it...

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...for an old CC debt from WaMu. Totally was not expecting it; I wonder if one of the fallouts from the ongoing bank crisis is going to be that lots more folks will be seeing written off debts and their associated 1099's. Anyhow, one of the steps I took toward fixing my finances a couple of years ago was to find myself a good accountant/enrolled agent. (I'm self-employed.) I have my annual tax appointment in February. I'll talk to her about this and let you all know what she says.

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Hi:)++

I was wondering if a creditor writes off a card, they don't sue and the balance is off my cr after seven years, do you still get a 1099? If the answer is here I’m going blind trying to find it?xbugeyesx

Thanks everybody!

Different perspective: Don't sweat it. I would let it go at this point. DO NOT poke a sleeping bear with a stick. They should have written the debt off years ago, and the IRS only audits back three years. If they asses a deficiency, you hire an enrolled agent to either argue that it should have properly been declared as income in a year out of the reach of the IRS or you settle for pennies on the dollar.

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Let sleeping dogs lie.

BUT while the IRS generally audits only three years back, income is only "out of reach" of the IRS once the statute of limitations has passed. SOL = 10 years from the time you file the return. Many things can extent the SOL, nothing contracts it.

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Sox,

I think there are two things going on here. First, there is a 3 year SoL for auditing a return. Once that has run, there is no way the IRS can assess a deficiency for a tax year that is now past the SoL. The caveat is that if the taxpayer omitted income in an amount that is at least 25% of the size of the GI claimed for that tax year, the SoL is then 6 years. Fraud (hard to prove and not in play here) trumps all SoLs.

Once assessed a deficiency, then the IRS has 10 years from the date of assessment to collect.

I know this is true because I took an LLM course with a well-known tax attorney. I've read many of his cases where he has successfully conceded that his clients should have paid the federal tax, but that the income was by definition earned four years prior to the assessment, thereby unauditable and uncollectible. Usually his clients will settle with the IRS for a 5% payout to avoid the expense of the trial. The IRS knows they're beat, but its in everyone's financial interest not to take it to Commonwealth Court.

Edited to add that this is totally different than NOT filing a return. If you don't file, then the SoL is never tolled and the IRS can assess a deficiency at any time.

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Edited to add that this is totally different than NOT filing a return. If you don't file, then the SoL is never tolled and the IRS can assess a deficiency at any time.

If I may, the SOL is tolled from the date of filing if you do not file timely.

CL

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