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Portfolio Recovery Associates 1099-C


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I just received a notice from the IRS stating that I did not claim earned income in 2007 thanks to a 1099-C submitted by PRA for over 8,000. Now they are saying I owe about $2,200 in taxes as a result. I don't remember ever receiving a 1099-C from these devils. In 2006 PRA sent me a zombie debt collection letter, and I promptly sent them a FDCPRA dispute letter and then a VOD by certified mail. Needless to say they never responded to either letter. I still have the certified mail copies along with the return receipts. I'm going to call the IRS today about this, but my guess is that they'll ask me to pay now and dispute later... Do I have a legal case against Portfolio Recovery for this? I read on Budd Hibbs website that they've done this to a lot of people. Any tips would be appreciated.

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Generally, file Form 1099-C for the year in which an identifiable event occurs. See Exceptions below. If you cancel a debt or business before an identifiable event occurs, you may choose to file Form 1099-C for the year of cancellation. No further reporting is required even if a second identifiable event occurs on the same debt. Also, you are not required to file an additional or corrected Form 1099-C if you receive payment on a prior year debt.

So what is "AN IDENTIFIABLE EVENT"?

A debt is canceled on the date an identifiable event occurs. An identifiable event is:

1. A discharge in bankruptcy under Title 11 of the U.S. Code for business or investment debt (see Exceptions on this page).

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.

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.

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 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 fund 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 debt. Use any reasonable method to determine the amount of occurrence of this identifiable event if:

a. 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

b. 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 are the debt by the creditor.

General instructions advises of a $50 per 1099 penalty for failure to provide correct 1099s to the IRS. There is no penalty for failure to provide to the taxpayer

So did an identifiable event occurr within the time frame?

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We had a discussion about PRA issuing bogus 1099-c forms some time ago.

The last page has some references to a private right of action authorized under the internal revenue code in which you can sue anyone who issues a wrong W-2 or 1099-c for $5,000 in statutory damages and let a court decide whether you have any tax liability at all.

http://www.debt-consolidation-credit-repair-service.com/forums/showthread.php?t=292989&highlight=1099

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  • 2 weeks later...

Here's what I sent to Portfolio this week. (I borrowed a bit from Bud Hibbs website).

To Whom It May Concern:

In February of 2006, I received a settlement offer letter from your company, dated January 27, 2006, concerning the collection of the above referenced account (copy enclosed).

On February 7th of 2006, I mailed a dispute letter (copy enclosed) to you via certified mail (return receipt requested) in accordance with New York State’s Fair Debt Collection Practices Act and Fair Debt Credit Reporting Act laws.

Your company received and signed for my letter, yet never responded to my dispute and my request for proof of documentation of the validity of this alleged debt.

I subsequently mailed your company a request for validation of this debt (copy enclosed) in accordance with New York State’s Fair Debt Collection Practices Act and Fair Debt Credit Reporting Act laws.

Your company received and signed for this letter, yet never responded to my dispute and my request for validation of this alleged debt.

In June of this year I received a notice from the IRS (copy portion attached) stating your company submitted a 1099-C Cancellation of Debt form in 2007. I received no 1099-C from your company.

The IRS claims that your 1099-C Cancellation of Debt form was for earned income for the year 2007 that I did not claim in my year end taxes. They are now requesting a tax increase amount of $2,202.00 (including interest charges) based on your claim of $8,348 that you are purported to have “forgiven”.

According to the Attorney General's Office, “In the case of a debt that has been disputed and cannot be proven, a 1099c is not a valid option for a collection agency to file. By filing the 1099c they are saying that “yes, this is that person’s debt and we can prove it”. However if they cannot validate, they cannot file the 1099c". ...the Attorney General’s Office suggests that the recipient of the 1099-C file a complaint with their State's Attorney General’s office, or file a civil suit, or both.

Yet your philosophy seems to be that if the consumer won’t pay you, then the consumer should pay the IRS so your company can reap the benefit of a tax deduction?

The question seems to be whether your company’s creative accounting allows you to deduct the amount of the debt as shown on a fraudulently submitted 1099-C, and not the pennies on the dollar that you actually paid for the worthless debt!

So here is my offer to you.

I am requesting that you immediately VOID this 1099-C and that you send me documentation to that effect.

I will also be filing a complaint with the New York State Attorney General’s Office, the Better Business Bureau, and if necessary, I will retain an attorney to pursue this matter in a court of law and sue for damages.

I will also file a Tax Fraud complaint to the IRS, at which point they will be obligated by law to investigate. As you are well aware, the IRS has enormous powers, and will audit Portfolio Recovery Associates. Additionally the New York State Attorney General’s Office and the Better Business Bureau will also investigate your company.

I look forward to your prompt response to this letter.

-------------------------------------------------------------------------

Now here's what I wrote to the IRS:

To Whom It May Concern:

This letter is in response to the AUR notice received in June 2009 concerning the 1099-C Cancellation of Debt form submitted by Portfolio Recovery Associates.

I believe this 1099-C has been fraudulently submitted to the IRS. I also never received a 1099-C form from this company.

This company is neither a creditor, a lender, nor a financial institution, but is in fact a collection agency who never validated this alleged debt.

Upon receiving a collection notice from Portfolio Recovery Associates in January of 2006, (in accordance with New York State’s Fair Debt Collection Practices Act and Fair Debt Credit Reporting Act laws), I immediately mailed dispute and validation request letters to this collection agency (copies enclosed).

To date, Portfolio Recovery Associates has never responded to my timely dispute and requests for validation.

To date, I have signed no payment agreement with this company.

Below is a portion of the certified letter I recently sent to Portfolio Recovery Associates (copy enclosed).

According to the Attorney General's Office, “In the case of a debt that has been disputed and cannot be proven, a 1099c is not a valid option for a collection agency to file. By filing the 1099c they are saying that “yes, this is that person’s debt and we can prove it”. However if they cannot validate, they cannot file the 1099c". ...the Attorney General’s Office suggests that the recipient of the 1099-C file a complaint with their State's Attorney General’s office, or file a civil suit, or both.

Yet your philosophy seems to be that if the consumer won’t pay you, then the consumer should pay the IRS so your company can reap the benefit of a tax deduction?

The question seems to be whether your company’s creative accounting allows you to deduct any amount of the debt as shown on a fraudulently submitted 1099-C, and not the pennies on the dollar that you actually paid for the worthless debt!

Consumers all across the country are being victimized by collection agencies like Portfolio Recovery Associates.

And now the IRS is being defrauded by these collection agencies for huge tax deductions on alleged or expired debts they have paid only pennies on the dollar for.

I believe the IRS should investigate Portfolio Recovery Associates for tax fraud.

---------------------------------------------------------

Before sending this letter, I called the IRS with questions. The reps were friendly, helpful and rather intrigued by this story. They asked how it was even possible for a collection agency to submit a 1099-C cancellation of debt without validating it first. And all this so they can cheat the IRS and the consumer for a tax deduction....

I read newryman's explanation about "AN IDENTIFIABLE EVENT", but I'm not sure I understand it clearly. I hope my two letters give you the required info.

What I'm wondering is, if the IRS denies my request, do I have a case against PRA in tax court for damages, at least for submitting the 1099-C without validating the debt?

Another question is, what if the IRS says I do not have to pay? Can I still pursue PRA in court for what they did?

Any help would be greatly appreciated.

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It means that they cannot issue a 1099c unless they can actually prove it by way of paperwork.

Take a look at this case which also places them under risk of suit for FDCPA breaches

Debt Buyers' Assn. (DBA) v. Snow, US Dist. Ct., D.C. Dist., 2006

This decision states that a debt buyer cannot issue a 1099C per IRS rules after an "identifiable event" (in this case, three years without significant collection activity on a debt) has occurred unless there is sufficient information available to "distinguish between the total amount of reported discharged debt and the interest included as a portion thereof". The debt buyers claimed the information is not available and the attempt to meet the IRS requirements, if they were not exempted, would make them violate the FDCPA. The court, however, found that the debt buyers' could indeed get the information they sought (and often did up front), and hence could meet the requirements of the IRS regulations without falling afoul of the FDCPA.

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  • 1 month later...

Is there a deadline on which you can contest a 1099-c.

My wife got one from Chase, it was one of those accounts that was bought and sold at least two times. I am pretty sure that they do not have a chain of custody paperwork to prove she had an account. She never had a Chase card.

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I'm totally amazed at how junk debt buyers such as Portfolio Recovery Associates would stoop to this level when it comes to collecting. But it amazes me even more that the IRS hasn't fully caught onto this scam.

Portfolio Recovery Associates is scamming the IRS along with the consumer.

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  • 4 weeks later...

I just received a letter from the IRS stating that the letter I sent them, along with the certified mail dispute and VOD letters I sent to PRA... was useless. Their bureaucratic reply was: "the information you sent was not sufficient for us to change our determination. Within 3 to 4 weeks, you will be receiving a Statutory Notice of Deficiency."

I haven't heard back from them yet on the separate complaint I filed against PRA with them, so I'll need to check on that. Needless to say I haven't heard back from PRA. At this point all I want is to take PRA to civil court for FDCPA breaches and to compel the IRS to investigate my claims instead of simpy telling me I "didn't provide them with enough information."

I recently lost my job due to layoffs, so I'm not in a good position financially to support Portfolio Recovery Associates fraudulent tax writeoffs.

Any advice on my next course of action would be deeply appreciated.

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Call the IRS, explain the situation, and fax them the letter. Hopefully you will find someone who is willing to listen and help you.

The best thing to do is to pay the taxes ASAP to get the IRS off your back, and then sue Portfolio Recovery Associates. If you win your suit then you can go back to the IRS and try to seek some sort of tax write-off/refund and pursue the fraud claim with a vengency.

I would also call the IRS back up and find out if they have a special form you need to fill out on the fraud claim. If they do and you fill it out then you may be entited to a % of the money they recover from Portfolio Recovery Associates if they decide you claim has merit and goes after the JDB.

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  • 2 weeks later...

They need to have sufficient information available to distinguish between the total amount of reported discharged debt and the interest included as a portion thereof. Make them show that to you. If they haven't then there is no identifiable event. If there is no identifiable event and they have reported it as such they are misrepresenting. All there is, is their guess at what the amount should be. That is incorrect/fraudulent reporting to the IRS and an achilles heel for them.

And there is where they are between a rock and a hard place. The law places an obligation on to them to report. However keeping the admin records and obtaining original docs from the OC/jdb 1 - 35 etc needed in order for them to comply costs time and money. Something they are not keen on doing. In general they lack the documentation which is how they buy so low.

So do they admit to the IRS they have no records that allow them to comply with the law or do they just issue a 1099c anyways in the knowledge that 99.9% of people will never challenge it?

Hence in that dilemma there is the potential to get rid of the problem by throwing the obligations ball back in their court and saying hey want to pick this up and run with guys? Trust me it is a great game why don't you want to play anymore guys? Come back ! :(

By claiming they are misrepresenting the legal status ( which has sufficient legs to withstand preliminary objections) you are forcing them into court to prove they are not. The only way they can prove that is to provide the records. I think you get the picture now of where this is going? If they cant produce that then their admission of that in court is an admission of failing to comply with another law - oops.

That is why they fought so hard as an industry to be exempt and the case I originally referred to came about. They did not get the result they wanted and have been running in circles ever since with a very few limited exceptions. Bear in mind the whole concept in tax/legal terms is fairly new to that industry.

There will without doubt be a lot of emerging case law in the next few years over this to add to, overturn or expand what there already is; in the meantime however, my experience is that no one on the other side of the fence has expressed any enthusiasm to test or litigate this less they get an answer they do not want. Hence I am a fan of aggressive litigation against them with the aim of getting a deal done in exchange for dropping the suit. Please, do not take my opinion as chapter on verse on this. It is just that, my opinion and how I have dealt with this particular issue to a successful conclusion. I have known others succeed this way also. Others will also have a differing opinion. At the moment there is no clear line drawn in the sand with any degree of certainty, other than it is a 10 foot pole question so far as the JDBs are concerned when they are actually pressed hard on it and hit with a summons. We are talking about a LOT of cash for them to defend this, and an even larger pot of their cash at risk should it all go horribly wrong for them.

There again I like poker and bluffing the opposition is all part of the game :dunno:

The IRS are the IRS and do what they do, they in reality could care less so long as they are getting their money. What really peaks their interest however is potential sources of revenue where reporting is not taking place as it should be. No JDB wants an IRS compliance audit EVER.

That is usually the stick they can be beaten with, but I would recommend seeing an attorney who has spe******t knowledge of that area of practice. It is possible to do it with relative ease however it is not a case for a sole practitioner who not adept at dealing with not only the slippery ways of a JDB let alone the equally slippery ways of the IRS.

Yes there is a time limit but of the top of my head I do not recall what it is. I do remember there are variances which is why I am not sticking a figure down as it may be misleading.

Sooner or later I have the feeling we will see a consumer attorney with an in depth knowledge of this issue tackle it head on and litigate it to a logical conclusion. In the meantime it is place your bets and spin the wheel.

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Thanks newryman. I mailed a complaint to my state's attorney general and sent a copy to PRA this week. I told PRA the next step will be to hire an attorney. If my previous experience with Credigy Receivables is any indication, they'll continue to ignore me until I drag them into court, ask for a half dozen continuances and try to bluff their way through every appearance. I handled that case on my own, but as you mentioned, this is too tricky to do solo. Thanks again for all of the encouraging words and I'll keep everyone posted.

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Knowing some JDB's reputations, they may just type up a fake statement and type in any number on the 1099c.

And forcing them to enter it into evidence under oath can cause them serious problems when they can not substaniate it and lose at trial.

Heads they win tails they lose.

If they can't take a joke they shouldn't start by saying knock knock unless they know what the punch line is going to be :p

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I contacted several lawyers locally via the NACA, site and also through my local Bar Association. So far, no one seems to be interested in my case because the "amounts in question are too small".

I also mailed a letter to my local Taxpayer Advocate on Aug 7th, filled out a 911 form (request for Taxpayer Assistance form http://www.irs.gov/pub/irs-pdf/f911.pdf), and included the notice from the IRS. It'll likely take a few weeks for them to respond.

Is my only other option to file a complaint in court myself?

When I had to deal with Credigy Receivables, they were trying to sue for a zombie debt. It took months of their stalling the judge before Credigy dropped their case against me "with prejudice" having no evidence, and nothing more than a badly faked complaint.

But the language of the law is tricky stuff, especially when you're trying to represent yourself.

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I went down the same road with PRA 2 years ago. After they realized that they could not win, they sent me a 1099-C.

To this day the IRS has not sent me a letter or levied any additional tax against me.

PRA are just a bunch of bloodsuckers with no documentation besides sworn affadavits, which we all know are worthless pieces of paper.

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