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Tax implications of various scenarios


BigJT
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Im aware that you get a 1099c when you settle a debt with a creditor for less than what is owed. The difference is considered income, with a few exemptions and exceptions.

I'm curious about some other scenarios. Is it considered taxable income if:

-the SOL expires on the debt?

-a creditor sues and the case is dismissed with prejudice?

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Using the SOL as an affirmative defense against a law suit is one of the "triggers" for the OC to issue a 1099c. Also, if they know the SOL has passed, they may decide to cease collection attempts...which is another trigger.

As far as having a suit dismissed with predjudice...the answer is...maybe. Civil court and Tax court are two different animals. Just because the civil court says the OC's case doesn't prove you owe them money doesn't mean the IRS will agree.

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  • 3 weeks later...

I was recently offered a settlement by the judgment creditor and I was told that once the case if closed, meaning they accept the agreed amount to satisfy the judgment amount in full, that they will not be sending any 1099-C.

They also claimed that since they are a law group, and the judgment creditor at that, that they are linked to the court and any activity that satisfies the payment will automatically report this to the court as paid and closed.

Are both scenarios true?

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