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PRA 1099-C Complaint with State AG, Repsponse - Now what?


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I received a 1099-C from PRA in January. I started receiving phone calls in 2010. I never picked them up, I sent PRA a DV letter then a C&D letter when the calls continued. Nothing was heard until i got the 1099-C from PRA in January.

I filed a complaint with my State AG's office and this was the response they got and they have since sent this to me, said thanks and have a great day. No action was taken. What action can I take from here? Will the IRS simply take a letter like this from PRA as stating I owed this debt? They never proved to me a) it was mine B) they owned it.

Thanks,

E

Thank you for bringing this matter to our attention. PRA purchased the account from OC in 2009. At the time we purchased the account, OC informed us that the account holder was ME whose social security number ended in ####. The Form 1099-C was prepared and filed pursuant to the IRS 26 USC 1650P blah blah blah. When we filed the Form 1099-C in 2011 we had discontinued our collection efforts in view of the consumer’s letter of Late 2010, a copy of which is enclosed, requesting that we cease communications with the consumer in regard to the account.

Please let us know if we may be of further assistance in this matter.

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Use the search engine at the top of the page and do a search on "1099". There are tons of threads on the matter that will take you days, possibly weeks, to read.

The thing is, it is the IRS trying to collect taxes, not the collector trying to jab you one more time. It's been a while since I've read the topic myself but I believe that you can dispute owing the debt with the IRS.

I cannot safely say anything more than this becasue I too need to reread what has been said on the subject.

I personally would dispute the debt because, by not doing so, one implicity admits to it. Why would one pay a debt they do not owe? The simple answer is that it is far more trouble to dispute than to pay taxes on the debt but the questions as to why did you pay is still a question that will be asked.

Even though PRA did file a 1099, they can still attempt to collect the debt. They can attempt to collect till infinity. However, their options are limited. Knowing PRA, the debt is probably sol so they can't sue. They can't contact you because of the cease communications order.

About the only thing that they could do would be to hope that you have a change of heart or a twinge of guilt and just pay the debt. Fat chance, I think?

Do a search as I said and bring your questions back to this thread. Your question covers a broad topic and I, or someone, will help you if you bring the questions here along with the search results.

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Did they write off the debt, or did they just stop their collection efforts? What if they start their collection efforts again? Do you then re-owe the debt after paying taxes on it?

It doesn't sound to me like they have a legitimate reason for giving you a 1099, but maybe they do. I'm not an expert on this by any means, so don't give too much weight to what I say. Still, it doesn't sound like you had the debt written off.

Also, while I can't say to ignore the 1099, I can say that I don't think the IRS compiles 1099s against the person they're for.

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Grab a pepsi and read this thread:

http://www.creditinfocenter.com/forums/showthread.php?t=301713&highlight=1099

I would read it all the way through once and then go to the different links for further information.

I've read that prior to posting this. I thought my question was specific enough as I had disputed with the State AG's office and had received a response.

I did not see much on that thread on what to do after that. (BTW.. I've already filed a tax fraud form with IRS as well as VA's AG office and TX AG Office)

It seems, and rightfully so with the AG overworked.. that they do not have the time to really look into this. They take the response from PRA and forward it on to me. There is no aggressive enforcement. This is my problem for living in this state.

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Did they write off the debt, or did they just stop their collection efforts? What if they start their collection efforts again? Do you then re-owe the debt after paying taxes on it?

It doesn't sound to me like they have a legitimate reason for giving you a 1099, but maybe they do. I'm not an expert on this by any means, so don't give too much weight to what I say. Still, it doesn't sound like you had the debt written off.

Also, while I can't say to ignore the 1099, I can say that I don't think the IRS compiles 1099s against the person they're for.

From what I received, they have discontinued their collection efforts. I'm not sure if they would restart their collections effort. They were never able to validate the debt and who the original creditor was. All i was told was the last date of action was well over 10 years ago (2000). So even if they wanted to sue, it's past SOL plus they have never been able to validate it.

Who knows if they can write off the entire debt. Most likely the OC who ever it was wrote this off in 2000 and I doubt PRA paid the amount they are attempting to write off.

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Well, it's not them who are writing off. What the 1099 means is that they're giving YOU a credit on the bad debt. That's why the credit is considered income. You owed, say, $10,000 that you were required to pay, they allegedly wrote off the $10,000, and so it's like $10,000 income for you, not $10,000 that it cost them.

But, either way, I still think that simply "ceasing collection efforts" shouldn't be enough to consider that as income. Unless some kind of binding agreement is reached where they agree to reduce the debt to such and such an amount, there's nothing that's really been reduced. That debt is still outstanding.

And, even though it's past the SOL, that only applies to lawsuits. There's nothing preventing them or someone else from collecting on that debt tomorrow or the next day.

Thus, even if they have "ceased their collection efforts," they could get an offer tomorrow from Joe Bloe Collection Agency to buy the debt from them for $10. They sell the debt, and Joe Bloe starts trying to collect on it. Legally they can't sue you, but they can still try and collect on it. And you (or someone) might actually pay.

So the point is that unless some agreement has been reached to reduce or forgive this debt, it's still an outstanding debt, IMO. But, again, take what I say with a grain of salt. This is only my opinion, not expert advice.

Also, about the AG and a fraud claim, I couldn't see them investigating it in any state. It's just a piece of paper. They haven't defrauded you. IF it comes down to an issue, it would be between you and the IRS as to whether or not you owe taxes on it. And that's even if it came down to it.

Again, I can't say you should ignore it, but I would have a hard time filing that with my income tax return. If I ever got audited, I would just say that I disputed it, and filed a dispute, etc. But that's just me.

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Ceasing collection efforts is one of the well defined required 1099 triggering events that are spelled out in the myriad of treasury regulations.

It doesn't matter what the party 1099'ing you paid for it. That's irrelevant and doesn't even come up in the treasury regulations.

You should not be 1099'ed for the same debt twice.

If I were getting 1099'ed for a debt that wasn't mine (which was legitimately not mine), I'd attach a copy of the 1099 to the back of my return with a letter explaining that the company must have been mistaken because you were never a party to this transaction. The IRS already has the 1099 info (see information return), so you aren't tipping them off to anything. If the IRS then nvestigates whether or not it is owed, you are showing good faith and disclosure, two factors that weigh in your favor.

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Also, about the AG and a fraud claim, I couldn't see them investigating it in any state. It's just a piece of paper. They haven't defrauded you. IF it comes down to an issue, it would be between you and the IRS as to whether or not you owe taxes on it. And that's even if it came down to it.

Again, I can't say you should ignore it, but I would have a hard time filing that with my income tax return. If I ever got audited, I would just say that I disputed it, and filed a dispute, etc. But that's just me.

This is pretty much it.

The debt collectors don't even want to send the 1099 but the IRS requires them to. The AG won't do anything because the collector has only done what the IRS has required of them.

What not reporting the 1099 would amount to would be not reporting income. The bar is far lower for the IRS as to whether you owe the debt, or not. The collector, by sending you a 1099, has said that you do. Your choices are to dispute the debt to the IRS, pay the taxes on the 1099, or simply ignore the 1099. As long as a red flag does not come up, the IRS probably won't pursue the matter. However, if a red flag does come up, you will be facing penalties for not reporting - whether you owe the debt or not. I don't see turning a blind eye to the 1099 as a viable option.

I'd say dispute the 1099 with the IRS. You will need to argue your case with the IRS, not the collector, that the debt is not yours. Some things are just not worth the effort for the possible benefits. Some things are.

I personally would dispute but if I saw that the IRS was going to fight like a bulldog then I might just pay the taxes. Your 1099, your choice.

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Totally OT- I had more tax law classes than most practicing tax law associates. I spent four years focused on taxation, including one additional year in the Taxation LLM program. My office is chock full of tax code, regulations, hornbooks, and quite literally tens of thousands of pages of notes and IRS authority. If I didn't have two kids under three years of age, I'd be an associate in the tax department of a law firm working my 80 hours per week in the nerdery. But I don't want to "get to know" my kids when they are teenagers, so I opted not to go that route.

1099s are sticky because we have three parties involved. The IRS doesn't want to referee, but they are required to collect tax on 1099 income as per Treasury.

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Yea, the general idea I get about 1099's for debts is that it is easier to pay the taxes rather than making an argument with the IRS that they will have to chase down someone else for those taxes.

And, if you would set the bar up to "legitmate debts" then that would mean that most of the posters on this forum should just go ahead and pay the taxes on the debt. I take your definition of "legitmate debts" to mean that one actually did have an account with the creditor even if the amount itself was in dispute.

I personally think you are too honest. I would not see an account as legitimate if I actually did applied for and got credit from a creditor, the account went delinquent, and a JDB bought the delinquent account. I would see the JDB as a person who bought low and expected to sell high. If the JDB then could not provide assignment, a contract, or any other evidence that supported their claim then I would consider their high risk venture a bust. I don't think I should pay taxes on their loss.

I would see the creditor as selling out and giving up all rights to collect because these rights went with the sell. So should the taxes go with the sell. The JDB speculated that they would gain the full amount and loss. The JDB should, therefore, report the debt as the loss it truely is for them. Unfortunately, the IRS would not buy this argument. The argument with the IRS would have to be that "I've never had a business relationship with the JDB, I asked them for assignment, they have not provided that assignment, the JDB must be mistaken".

This is how I would respond to a 1099. If the IRS said tough luck, you have to pay the taxes, I would probably then reluctantly pay the taxes. One does not want to upset the IRS.

Edited by Downto0
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You aren't paying taxes on their loss. That is where that line of thinking goes wrong. You would have had income the day you used the card BUT FOR the obligation you made to repay. At some point in the future when that obligation to pay is discharged either by a court decision, expiration of an SoL, or when the owner of the debt just gives up, that income is now yours.

It has very ltitle to do with the onwer of the debt. They have their own treasury regs that handle timing issues pertaining to recognition of gain/loss. It is about the benefit you received from the account and how that loop is closed. And it must occur because if they didn't there would be a gaping tax hole. IRS would allow deductions for losses by creditors but no equivalent income by the counterparty. Like all other tax policy, there has to be symmetry.

But all that doesn't matter. That's a view from 10,000 feet. When you zoom in on this issue, the 1099 means the IRS was notified. They know about it. I explained how I would handle it, provided I legitimately had no connection to the debt. If I did have a connection to the debt, then I'd claim it on my return and run through 982 to mitigate the tax consequence, and if it didn't apply, I'd pay the tax on it and be done with it.

Or you could gamble, ignore it, and then risk being stuck with paying taxes and penalties on it, legitimate or not. If the 1099 came to you in 2010, say a prayer and hope April 15th, 2014 passes without a tax deficiency notice.

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Or you could gamble, ignore it, and then risk being stuck with paying taxes and penalties on it, legitimate or not. If the 1099 came to you in 2010, say a prayer and hope April 15th, 2014 passes without a tax deficiency notice.

Yep, not a viable option. I do believe that the IRS has a copy of the 1099. They could easily find out that a debtor chose not to include the debt income if a flag comes up. There is a reasonable chance, however, that the flag won't appear because I file some of the 1099's I get with other income.

We, my wife and I, have a small parcel of land we rent out. The farmer sends us a 1099 but my software wants me to put it under "rent and royalties". No flag has gone up for not reporting the 1099 as a 1099 income.

That being said, it is conceivable that, even though the IRS has a copy, they won't really know if you reported it unless they do an audit.

You aren't paying taxes on their loss. That is where that line of thinking goes wrong.

No, I understand that the IRS's position is, I borrowed the money and that, no matter what, I still owe the money.

My way of thinking is that JDB's are guilty of "unclean hands" due to their unrelenting violations of the FDCPA, FCRA, etc., or "unjust enrichment" because they make tons of money for little investment thus the JDB's do not deserve favorable judgment. These defenses will work in a court of law if you have a good argument.

But, the IRS is not a court of law. They would not buy this argument. The only viable argument that I see for disputing the debt with the IRS is that the JDB must have made a mistake.

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Not sure how the OP feels about the amount that's in Box 2, but let's for argument sake say that number seems a bit high, probably because there is some interest included in it.

That interest should not be included unless reported in Box 3.

The 1099 would then be inaccurate. Can anything be done with that angle?

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This is one of the reasons why the collectors do not want the responsibility of issuing the 1099's. Their claim is that they do not have all the information where they could possible separate interest from principle.

The consumer is in no better position to argue the interest/principle. If the consumer told the IRS that they thought the principle was to high, how would they prove it?

It would be easier to either pay the taxes or deny the debt altogether. Trying to separate interest from principle would be impossible...or at least time consuming and costly for either the consumer or the collector.

For now, I think the op had their question answered about why the AG would not go after the collector.

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Unless the interest on the debt was tax deductible, the bifurcation of the total amount into interest/principal distinction is moot. You pay tax on both interest and principal anyway.

In the case of, say a mortgage or student loan, then the interest paid is tax deductible. So Box 3 becomes important. The regulations state that you only claim as income the principal amount if and only if the interest is tax deductible. That makes sense, because if you include the interest portion as income then deduct the interest, you get to a net amount = to principal anyway. So the regs just collapse two steps into one.

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Down-How about something along the lines of an old statement and/or credit report showing a credit limit of a certain amount, while Box 2 is significantly higher?

jq-Was thinking more along the lines of fighting to get them to correct or rescind the 1099 since it was done incorrectly. So I guess there's no penalty to the issuer for not following clear instructions when interest is included in Box 2. It would stand to reason that if the IRS would take the time come up with rules, there would be a penalty of some sort for not following them. Maybe those rules only apply to taxpayers.

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The problem is that there are more questions than answers on the 1099's. I haven't read where anyone has disputed the IRS on a 1099. Just questions.

You could always try any sensible argument to see if it gains traction. I think what you would need to establish principal/interest would be the account statements showing the date of first delinquency (dofd) and then a cr showing that same date. Here, one corroborates the other.

A higher balance than the limit could have happened due to a temporary extention of credit and then the account went delinquent.

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The answer I posted earlier on attaching a letter of explanation was the recommendation given by a tax attorney with 30 years of experience. But if the income should be yours, then likely the IRS will see to it that the income is yours. So unless the debt was not yours to begin with, I don't recommend denying it. I'd go to form 982 to try to mitigate the damage if you are insolvent, and if not, then pay the tax and be happy you paid pennies on the dollar. I'm pretty sure any accountant or tax attorney is going to give you similar advice, and then a month later send you a bill for $300 for their 1 hour consultation.

Good luck!!!

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