1099 for Charged Off Accounts

[Determined1]

Hi all,

A few questions about 1099 for charged off accounts....

Is it fair to assume if I did not yet receive a 1099 for a charged off acount prior to 4/15/10, (for 2009 taxes) then any potential 1099 will come later in the year for 2010 taxes, and should arrive prior to 4/15/11?

Also, on a business account that has a personal guarantee, do they send the individual a 1099? The business?

Last but not least, how do they determine the valuation of the 1099 - does it reflect how they calculated the charged off amount, or do they subtract the value they received if they sold the account to a CA or JDB?

Thanks for your feedback!

[Bradly1]

Hi all,

A few questions about 1099 for charged off accounts....

Is it fair to assume if I did not yet receive a 1099 for a charged off acount prior to 4/15/10, (for 2009 taxes) then any potential 1099 will come later in the year for 2010 taxes, and should arrive prior to 4/15/11?

Also, on a business account that has a personal guarantee, do they send the individual a 1099? The business?

Last but not least, how do they determine the valuation of the 1099 - does it reflect how they calculated the charged off amount, or do they subtract the value they received if they sold the account to a CA or JDB?

Thanks for your feedback!

Well, from what I know of 1099's and 1098's the company if the reduction of debt occured before years end should have been sent out to you.

If not they can't or shouldn't send you a 1099 to claim on your taxes for the next year on a reduction that should have been claimed on 2009's taxes.

If the company did submitt a 1099 and you just didn't recieve it and the IRS audits you then hehe you will be responsible for the taxes. If your curious then call the company an inquire about the 1099.

If not then w/e, its up to the company to submitt the 1099 and if they choose not to then its not your problem. If Big Bro doesn't know about it they can't ask for taxes on it.

Well if the debt was 2k and you paid 1k with 1k forgiven. You will have to report an addition 1k in taxable monies to your income. Should as far as I know be treated like taxable winnings if you gamble.

Edited April 13, 2010 by Bradly1

[kingair41]

The way I read it on another thread is if a 1099c is issued that effectively closes the account and can't be collected on. If no 1099c is issued then the account is still open and subject to collections.

I hope I understood that right.

I Also understood that a 1099c can be filed from the OC, a CA, or a JDB. I'm sure someone will jump in to correct me if I miss understood.

I have a few outstanding debts from 2008 and I still have not received a 1099c from any of them.

Edited April 14, 2010 by kingair41

[sub00]

The way I read it on another thread is if a 1099c is issued that effectively closes the account and can't be collected on. If no 1099c is issued then the account is still open and subject to collections.

I hope I understood that right.

I Also understood that a 1099c can be filed from the OC, a CA, or a JDB. I'm sure someone will jump in to correct me if I miss understood.

I have a few outstanding debts from 2008 and I still have not received a 1099c from any of them.

Technically you should have received all Tax forms, including 1099-C before Feb.1 2010. The IRS should have received it before March 1, 2010, a month later then you have.

Again, technically, once your canceled debt is reported to IRS as an income then there is no debt.

Caveat: With IRS noting is definitive!!!..... because you can file carry forward and back.

Example: You receive 1099-C for 2009 $1000 and you report it as an income.

In 2010, for what ever reason, you decide to pay OC/CA/JDB $1000 and have receipt or an agreement that it is for that specific 1099-C canceled debt, you can now take straight deduction for $1000 on your 2010 income tax return. I think you can go 5 or 3 years back and forward. (Check with IRS) If possible always consult with IRS by the phone and take agents #number and take minutes of that call and save it for at least 3 years as a proof for a possible audit. Usually you never get audited if you work wit IRS directly. (accountants are usually clueless so is the IRS for that matter but IRS error is not actionable)

Edited April 15, 2010 by sub00

[willingtocope]

Go read the gibberish in http://www.irs.gov/pub/irs-pdf/i1099ac_09.pdf

and http://www.irs.gov/pub/irs-pdf/i1099ac.pdf.

Basically, I translate this to mean that the 1099c is filed for the yrear in which an "identificable event" occurs. Charge off is NOT an identifiable event.

As long as the debt is still collectable, you don't geta 1099c.

[Guest usctrojanalum]

Last summer I was sued for six figures along with 2 other people (a co-obligor and co-signer). We jointly settled the debt but our settlement left us with six figures of relief. Part of the settlement was that we did not want a 1099 issued, the bank came back and said thats fine, but we do not issue 1099's anyway.

[willingtocope]

Last summer I was sued for six figures along with 2 other people (a co-obligor and co-signer). We jointly settled the debt but our settlement left us with six figures of relief. Part of the settlement was that we did not want a 1099 issued, the bank came back and said thats fine, but we do not issue 1099's anyway.

Read the gibberish I cited above. Whether or not your receive a 1099c is imaterial. If it was "forgiven debt" (not interest and penalty) you owe taxes.

[sub00]

As long as the debt is still collectable, you don't geta 1099c.

That is not true.

We know that debt is a commodity which can be purchased for less than its value and can be sold for more than its value.

NASDAQ (GS: PRAA) showed Tuesday’s close was 37.34 up from a high of 37.33.

Asset Acceptance Corporation (AAC) is not new to this game.

The Collectivity has noting to do with 1099-C.

1099-C is certain type of income reported to IRS and can be carry forward and back against your deductions.

See http://www.debt-consolidation-credit-repair-service.com/forums/showpost.php?p=1056726&postcount=20

In contrast the Charge-off is a significant affirmative defense

See http://www.debt-consolidation-credit-repair-service.com/forums/showthread.php?t=300729

Edited April 14, 2010 by sub00

[someguy.gs]

That is not true.

We know that debt is a commodity which can be purchased for less than its value and can be sold for more than its value.

The Collectivity has noting to do with 1099-C.

1099-C is certain type of income reported to IRS and can be carry forward and back against your deductions.

Under your theory 1099-c could be repeatedly issued on the same debt. OC issues one, debt still has value then sold, CA issues one, debt still has value and is sold and so on. It does specify to be issue on identifiable factors(all factors include it being uncollectable).

[willingtocope]

of course, I over generalized. My points are:

1. Charge off does not make the debt uncollectable. The OC has 3 years from their last attempt at collection to issue a 1099c. The debt remains collectable. If the OC decides to "write off" the debt, they still have 3 years to issues the 1099c.

2. An agreement between a creditor and a debtor to settle a debt is not binding on the IRS.

3. You can indeed get mutlipole 1099c for the same debt...one from the OC and another from the JDB. (CAs don't buy debts...no 1099cthere). Are they both valid? Maybe. You'd need a tax court to decide. The IRS is going to say, pay the tax and we'll sort it out later.

[sub00]

Under your theory 1099-c could be repeatedly issued on the same debt. OC issues one, debt still has value then sold, CA issues one, debt still has value and is sold and so on. It does specify to be issue on identifiable factors(all factors include it being uncollectable).

In essence that is correct!

Please notice that the 1099-C is not issued on debt but on income.

To understand this you must understand business:

The Balance sheet:

ASSETS + <LIABILITY> = EQUITY.

[monkey429]

ok one more question on this thread,if you get a 1099 c and debt is "forgiven",can they still report it on CR?

[Guest usctrojanalum]

yep.

[jq26]

In essence that is correct!

Please notice that the 1099-C is not issued on debt but on income.

To understand this you must understand business:

The Balance sheet:

ASSETS + <LIABILITY> = EQUITY.

Okay, I'm following along, but I'm not sure of what you are posting here. Are you implying that for the company to take a tax loss that there must be an equal and opposite item of income? If that's your point, then I agree. That's the matching principle- and it is pervasive. Both for GAAP and tax accounting.

When you receive property or loan proceeds, you would have income BUT FOR the enforceable promise to pay the money back with at least a reasonable amount of interest (to be technical, the loan must have a minimal interest rate equivalent to a fraction of the applicable federal rate (set by federal statute monthly) or the loan is subject to the Original Issue Discount tax rules. As soon as the portion of debt is forgiven or becomes unenforceable, the promise to pay becomes worthless, exposing the remaining loan amount as income. It is certainly not a windfall for the IRS. A borrower's COD income is a loss to someone else so it is a wash for Treasury. That is, of course, assuming that the borrower actually respects tax rules and claims the income in the first place. If not, then Treasury takes it on the chin because you know the lender will deduct the remaining balance of the loan.

The IRS has promulgated rules to help them enforce the tax law. One of these rules is to require lenders to issue a 1099 at a certain point to "flag" the IRS & borrower that income needs to be recognized. Without 1099s, we have chaos. What layperson is going to read Treasury regulations, apply them to their past due obligations, and then report amounts of income? It would be virtually impossible to expect borrowers to track the timing and amounts of income. By requiring 1099s, the IRS (they are provided a copy of all 1099s), borrower, and lender are all on the same page and the system is confusing but a least workable.

Willing seems to have a good handle on this. The IRS publications are usualy pretty decent. Read through the lender's reqirements for 1099s to find answers. They're boring as hell but informative.

[willingtocope]

One more gotch hiding in the fine print. If the "forgiven debt" is less than $600, the creditor is not required to issue a 1099c...but...the debtor is still required to pay taxes on the "found income".

[sub00]

One more gotch hiding in the fine print. If the "forgiven debt" is less than $600, the creditor is not required to issue a 1099c...but...the debtor is still required to pay taxes on the "found income".

Not true because you do not have to report any income which is less than $600

Please notice that "forgiven debt" is not synonymous with "canceled debt".

By a definition, the "forgiven debt" is a gift.... therefore no 1099-C is issued on that. There are different tax laws for gift and income.

Edited April 15, 2010 by sub00
Term "forgiven debt"

[sub00]

Okay, I'm following along, but I'm not sure of what you are posting here. Are you implying that for the company to take a tax loss that there must be an equal and opposite item of income? If that's your point, then I agree. That's the matching principle- and it is pervasive. Both for GAAP and tax accounting.

Have you ever heard about the S&L crises in 80's?

That was a classical case, after deregulation, when two S&L would bought their respective liabilities which would then appear in the books as an asset.

It was perfectly legal until the bubble burst.

Edited April 14, 2010 by sub00

[jq26]

Have you ever heard about the S&L crises in 80's?

That was a classical case, after deregulation, when two S&L would bought their respective liabilities which would then appear in the books as an asset.

It was perfectly legal until the bubble burst.

Yah, I studied it a bit in school. S&Ls were left holding the bag on many low interest loans when interest rates rose in the late 70s. In an effort to help the banks remain solvent, the FHLBB issued regs that allowed S&Ls to book federal tax losses by having S&Ls swap large pools of home loans with one another. Essentially, they booked losses without an actual sale- just a swap. Sort of like a 1031 exchange, except instead of the typical goal of gain nonrecognition, the entire purpose was loss recognition. The practice went on until 1991 when the Supreme Ct. disallowed losses generated this way. Cottage Savings Association is a pretty famous case.

I think the S&L crisis wasn't caused by "creating assets". It was caused by duration mismatch (30yr loans funded by day-to-day deposits), an inverted yield curve, spiking inflation, the creation of money markets sucking money from low yield checking accounts, and the ago-old moral hazard of using federally insured liabilities to generate privatized profits.

One more thing- I'd like to know why you think you don't report income below $600. News to me.

[Determined1]

In the event a debt is to a corporation, with a personal guarantee, can the creditor isssue a 1099 to either party, or only to the corp? If its to the corporation, what form applies?

Thanks for all the feedback!

[sub00]

One more thing- I'd like to know why you think you don't report income below $600. News to me.

Read IRS instruction "WHO MUST FILE"

The 1099-C simply mirrors the above requirements.

As to S&L Have you ever heard about Keating Five?

http://en.wikipedia.org/wiki/Keating_Five

They went little bit further than you described.

You can cook books more than 9 ways.

[sub00]

In the event a debt is to a corporation, with a personal guarantee, can the creditor isssue a 1099 to either party, or only to the corp? If its to the corporation, what form applies?

Thanks for all the feedback!

Only to debtor whose "canceled debt" becomes an income.

I am not accountant but 1099 forms are issued among the businesses too.

For example: If you pay someone more than $600 [and deduct it on your filing] whether he is an individual or corporation you must report that deduction to IRS on an appropriate 1099 or other form -- especially the attorney fees you pay to your lawyer.

Basically any time you pay or cancel the debt > $600 to someone and took a deduction (personal or business) for it you must report it on an appropriate form to IRS even your babysitter who maybe your (dependent) child.

Even to yourself [Example: If your business or yourself lends yourself money, and take a deduction for it and then later cancel that loan to yourself you must report it as an income]

If not you may be engaged in money laundering.

A gift is another story so you should not use a term "forgiven debt"

The "forgiven debt" = gift and is not subject to 1099-C. Only "canceled debt" is a subject to 1099-C reporting.

Please take note of it.

Edited April 15, 2010 by sub00

[admin]

Simply put, I understand it like:

Settle with an OC - they can issue a 1099c

Settle with collection agency: they can't

[jq26]

Read IRS instruction "WHO MUST FILE"

The 1099-C simply mirrors the above requirements.

As to S&L Have you ever heard about Keating Five?

http://en.wikipedia.org/wiki/Keating_Five

They went little bit further than you described.

You can cook books more than 9 ways.

sub00- I see where you are getting the $600 limit. This is the instruction for the party who is required to file a 1099 with the IRS (the party who cancels the debt). The recipient of the income is supposed to pay tax on the canceled debt regardless of the amount, even if the canceled debt is $1. WillingtoCope is correct. This is an administrative 1099 filing threshold not an income reporting threshold.

The IRS website confirms this. They state that this $600 of income safe harbor is one of the most prolific tax falsehoods. The idea here is that we don't want to bother lenders and the IRS with 1099s for small canceled debt amounts. The administrative burden outweighs the benefit. But the canceled debt is still income to the recipient regardless of amount.

Regarding Keating- I stand by what I posted. Keating was about corruption. S&Ls that had been buried in losses were not closed down as they should have been based on their balance sheets and capital requirements, but allowed to "double down" in riskier assets in order to make up the deficits that were dug years earlier. Not a problem when you are dealing with your own money, but when governments give guarantees this a horrific idea. It ended up costing a few billion and wiping out many retirees who bought high-yield bonds (inherently risky to buy "high-yelding" anything- there is no free lunch!).

[sub00]

Simply put, I understand it like:

Settle with an OC - they can issue a 1099c

Settle with collection agency: they can't

No.

I do understand that it may be complicated because there are compounded balance sheets involved where same debt is an asset on one and liability on the other or loss or an income.

Making it simple who ever reports deduction to IRS on his filing must report that deduction on 1099-xx or any other appropriate form. If he gets reimbursed later on for that deduction he must undo that deduction in his books and report it to IRS.

So, "Settle with an OC - they can issue a 1099c" -- only if there is an agreement that the debt is canceled otherwise NO.

So, "Settle with collection agency: they can't" NO because the OC did not settled and maintains the Charge-Off on his books and forwarded the debt to CA and you settled with CA. Therefore, CA must report it to IRS and to OC who must adjust his books for the previous Charge-Off.

Charge-Off itself does not trigger the 1099-c only the debt cancellation.

There is a limbo state for the debt until the debt is 1) Canceled = income; 2) forgiven = gift; 3) payed in which case all party involved must make their prospective IRS reportings and books adjustments so the federal reserve bank can adjust their books too and report it to public so the stock marked goes up or down which creates more debt and everything repeats all over again, which is called Capitalism and I love it.

Edited April 15, 2010 by sub00

[someguy.gs]

To understand this you must understand business:

The Balance sheet:

ASSETS + <LIABILITY> = EQUITY.

Yeah, you are right about that, you would have to understand business. Junk debts are not assets listed on a balance sheet at the full value of a debt. If the were, I become a junk debt buyer tomorrow, buy a portfolio for 5k and be an instant millionaire.