2steve

Do CC COs have to send the 1099?

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Thanks I am getting that from several sources...but it does creates a negotiating point to lower their offer a bit more inorder to pay the taxes on the amount forgiven.

no doubt; i'm in the same boat. my remaining creditors will have to take less to make up for the interest, fees, & taxes.

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Technically, the 1099c has two boxes. One that say "Balance owed", the other that says "Interest and penalty included in the other". You only owe taxes on the difference.

Since the CCs "profit" is the interest and penalty, they MAY be willing to forgo that depending on their own tax situation.

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I've been out of the loop for a while. I hope you're right on only owing tax on the difference, and I've seen other people here say the same thing, but in reading Pub 525 I see that it should only be excluded if it were deductable if paid.

That said, I certainly agree that only the principle should be taxable. I recall this being a big topic some time back.

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They have to report if it is $600+ in principal. But for most, particularly JDBs, they have no way of really knowing, so they simply report.

That being said, two points:

1. You can contest the assessment with the IRS by filing form 972 ( or thereabouts). I am not sure how effective it is in the Obama era, but I have been told the IRS does honor your request from time to time.

2. It has been said that a claim under the FDCPA iis stated if the collector offers a discount without also disclosing they will have to report the discount as income.

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I've been out of the loop for a while. I hope you're right on only owing tax on the difference, and I've seen other people here say the same thing, but in reading Pub 525 I see that it should only be excluded if it were deductable if paid.

That said, I certainly agree that only the principle should be taxable. I recall this being a big topic some time back.

You stated the law correctly. The entire amount is taxable unless the interest was deductible. In that case, you subtract the amount of interest- this is done because you would just deduct the amount of interest you paid anyway in the same tax year, which would lead to a NET amount of income equal to the full amount less the deductible interest anyway (ie you come to the same end result anyway just takes two steps instead of one).
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Typically, after accounts charge off and are placed with CA's, you will not get a 1099. Should you? Yes, of course it is required by the IRS however in my experience, charged off accounts and sold accounts usually do not receive a 1099.

Not exactly. CO does not mean sold. And, CAs don't buy debts...JDB buy debts. Cas just do the hassling for either an OC or JDB. The "owner" of the debt has 3 years from an "identifiable" event to issue the 1099c.

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