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PRA 1099-C, with a twist


ZRX1100
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I searched the archives, but didn't see anything that addressed the specifics of my circumstance. So, stated as briefly as possible:

15 years ago I defaulted on some debt while going through business failure and the related divorce and loss of home (in South Carolina). Last year I got a collection call from Portfolio Recovery Assoc. seeking $25k for a credit card balance from that time, which was ridiculously beyond the actual, original amount (although it's been too long now for me to recall the exact figure; but if I still had those records, most if not all the original amount could have been documented as deductible business expenses).

I immediately sent PRA a C&D letter, and heard nothing further until getting a 1099C from them in January for the $25k. Line 3 for interest was blank, and "NO" checked under line 5 for "personally liable." Our accountant didn't include it as income on our 2010 return, as IRS docs state clearly that cancelled debt is not income if you weren't personally liable.

Return went through fine, or so it seemed (we even got an unexpected refund of a penalty we mistakenly thought we owed related to moving some retirement funds). But a few weeks ago I received a "corrected" 1099C from PRA, with line 5 now marked "yes."

Suggestions on how to proceed?

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I'm kind of curious about this one myself. To begin with, I would not worry about making adjustments on this year's taxes because all 1099's are generally required to be delivered earlier than August.

I would dispute the current 1099 with the IRS as fraudulent because you now have two and they each say something different. Both can't be right.

You could try to dispute the 1099 with PRA but they notoriously ignore the consumer unless they get a summons.

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