THE MIGHTY 1099-C DEBUNKED AND POSSIBLE COST TO YOU.

[TomnTex]

OK! in 2008 I had to voluntary repos on my records. Each showed a charge off. One JDB picked one up and has been making noise. I believe he is the one who sent me a 1099-C.

If I understand everything correctly, they have up to three years to issue you one within three years of the date of default. It must also be sent out by Feb. 25th or so of each year. (May be wrong here), but from what I can glean from the records this is pretty close. The 1099-C can only be issued if the amount of default is more than $600.00 dollars.

My tax gal looked mine up. I pay no taxes as my income is all tax free (thank you Lord) However; the amount of one of the repo's was around thirty thousand dollars. That meant that should I have to pay the tax's the JDB stuck me with, I would owe Federal amount of $800.00 dollars and on a state level $1,400.00 dollars. That's a total of $3,000 that they are not going to get!

By using a form 982-IRS, I can claim the deductions I need and show insolvency for that year. That should wipe it all out. You must show insolvency for the year you get on your 1099-C. Other than that, a good solid BK 7 could help make it go away too. GOOD LUCK.

[backinthe50's]

I can't believe you posted this!! Was just researching if chapter 7 could eliminate a 1099 a or c-I have both. It looked to me as if only insolvency works. I am considering chapter 7 for several reasons-this is the one I am most worried about-the 1099s. I received one in 2010 and did not report it and 3 in 2011 which I did not report either as I received both years of them after I filed and alot of stuff was happening. I just didn't refile. Guess I should refile now as I'm sure I can show insolvent for each year. 2010 was a rental. 2011 was a primary and 2 rentals.. But, are you saying a chapter 7 would cover these even now-after the fact?

[TomnTex]

It should, I am not an expert on BK's, but it would show that you were insolvent at that time and things were getting worse until you reached this point at which you need to do a BK. for you. There are some other post on here about the 1099-C and BK. They are very current check them out, they will help answer your questions. You will need a tax person to help you if you just file, but a good BK attorney can set you straight.

I posted the above to show what I will have had to pay based on a $30,000 charge off. And, my income is tax free, SSDI etc. I should be able to get this off my back using the IRS 982 and a good tax person. Just research 1099-C and IRS 982 on here, you will get more answers. Good luck.

[willingtocope]

Nothing to do with the IRS is simple, but, here's a couple of comments:

1. Any debts IIB are tax free. You may get a 1099c for those debts from the creditor, and you need to include them with your tax return. If they're not marked "included in bankrupcty", you need to include a copy of your BK discharge with your return.

2. In order for pub 982 to work for you, you need to show you were insolvent when the debt went delinquent...not when you received the 1099. And, technically, you can't include the debt for which you received the 1099 as a liability. The 1099 says its income...an asset.

3. Just because your other income is tax exempt (SSDI, etc) doesn't automatically make your "found income" as shown by thhe 1099 exempt.

[Randall948]

2. In order for pub 982 to work for you, you need to show you were insolvent when the debt went delinquent...not when you received the 1099. And, technically, you can't include the debt for which you received the 1099 as a liability. The 1099 says its income...an asset.

Not wanting to start an argument but pretty sure youre a little off base on this section of your post.

From all Ive read the insolvency equation is for "right before" the 1099-c is issued. In other words the debt hasnt been written off yet (its still a liability) and whatever cash you have to settle (if any) is an asset.

3 different accountants ive discussed the matter with that fill out form 982s have confirmed these 2 issues with me (including agents for the 2 largest tax preparers in the country by the way).

[willingtocope]

I stand corrected...sort of (the whole 1099c thing has been a moving target, and I'm still not certain its settled.)

According to IRS Pub "Instructions for Forms 1099-A and 1099-C (2012)" the 1099c should be issued for the year in which an "identifiable event" occurs...and there is a list of 8 or 10 things that constitute an identifiable event.

So, you and your 3 accountants are right...mostly. However, if for example, the identifiable event that caused the 1099c to be issued, is that 3 years of no collections have passed, you may now NOT be insolvent.

[Randall948]

But the "identifiable event" that gives rise to the 1099 IS the owner of the debt "forgiving" a certain amount of the debt whether through settlement (forgiving part) or just giving up on collections or a similar event (losing what they claim is a valid collections lawsuit WITH prejudice.

Whether you were insolvent or not has nothing to do with the 1099.

The way it was explained to me (and it makes sense) is this:

If you settle debt just because you wanted to as a business decision but you had the wherewithal to pay it the IRS doesnt want to lose that tax money (and they wont) because AT THE TIME OF THE forgiveness you cant show insolvency. Doesnt matter when you quit paying. The 1099 and the subsequent form 982 deal with the time period during which the 1099 was dated because thats all the IRS cares about.

If you settle (or just plain default leading to a 1099-C) debt because job loss, catastrophe, flood, cancer, or a whole list of things created the environment where you could just not pay all or most of this debt, there is really little money for the IRS to get out of you anyway so they give you the 982 "escape clause".

One acct told me until just a few years ago insolvency was not a method by which you could escape paying tax on forgiven debt (closest thing was declaring bankruptcy) and they had so many problems with folks just not being able to be collected upon they changed it to the current setup.

In other words: It is to save the IRS wasting time on someone truly poor and uncollectable anyway. It is not really to benefit any actual citizen.

[willingtocope]

The 1099 and the subsequent form 982 deal with the time period during which the 1099 was dated because thats all the IRS cares about.

Agreed.

there is really little money for the IRS to get out of you anyway so they give you the 982 "escape clause".

Again, agreed...but...you have to file the 982. And, the criteria for qualifing for being insolvent under the 982 is basically the same criteria for filiing BK7, but without any exxemptions. your situation may have changed between the time you stopped paying, and the creditor finally gave up.

[Randall948]

your situation may have changed between the time you stopped paying, and the creditor finally gave up.

Agreed. Sort of a crap shoot that one is.

Im doing all the 982 stuff right now and I just.......baaarely qualify as insolvent due to the joke that they include ones 401k plan in as an "asset"

despite the fact that I can NOT get to it with mine except for a few very specific instances. And then of course these very same people get 35% of that amount even then.

Words are insufficient to describe my utter loathing for the IRS.

[TomnTex]

Just took in all my paper work to my tax person yesterday. She said it looked good for me. Will see how it turns out.

[Randall948]

Going today with mine!!

I listed out all my debts and reasonable approximations of FMV for my assets from some info I had and came up insolvent by around 16k. The 1099s were for around 20k so I'll have to pay tax on the 4k I guess and call it done (I hope)

So all told I settled around 30k (including interest) for around 7600.

Now pay combined 32% Fex + State taxes on the 4k so around 1300

7600 + 1300 = 8900 so even with taxes I settled for in the 30% range.

Whole lt better than paying off the entire 30k which I WOULD have done had the banks not started rate jacking me despite a perfect 20+ year payment history.

Really I thank GOD they did that to make me mad enough to just get rid of that whole pile in just 6 months (not counting the 1099 issue)

[TomnTex]

Relief is all I can say. Tax lady called today to tell me all was in order and I would have the papers to send off in a day or two. Supposedly, the JDB or the OC can no longer come after me for the thirty plus thousand, and the fact they tried to punish me with a $3,000.00 IRS tax payment that I now won't have to pay a cent on. Yes, relief is all I can say. Good luck on yours.

[Randall948]

Good luck to yourself too. However

"Supposedly, the JDB or the OC can no longer come after me for the thirty plus thousand, " you might want to research this some more. From what I understand not quite true.

I dont have time to find the threads now but from what Ive read the official IRS position is that even if one defaults (or settles or has a repo) on a debt and a 1099-C is issued, and the tax paid that has nothing to do with whether the debt can be acted upon.

I know I know its counterintuitive and seems all kinds of wrong but thats what Ive seen.

Also since most civil actions are in little podunk courts where Judges really often dont know what the law is what you'll get is a judge ignoring the 1099-C and just looking at whatever evidence the BS JDB vomits out and if he buys it the only thing that will keep a trial going from going on is if its out of stat.

Just as an example in my crazy 2 years of research leading up to my planned default-settlement I talked to no less than 2 local judges (one I know real well) about various scenarios and I mentioned 1099C's tax forgiveness and the implications on a civil suit.

Neither had any clue what I was talking about. And these guys have seen between then literally thousands of credit card debt cases.

Sad.

[willingtocope]

I dont have time to find the threads now but from what Ive read the official IRS position is that even if one defaults (or settles or has a repo) on a debt and a 1099-C is issued, and the tax paid that has nothing to do with whether the debt can be acted upon.

I remeber reading the same thing. The 1099c, by itself, does not extinquish the debt.

Why does your tax lady say that can't still come after you?

[Randall948]

yeah the problem I have is that many many MANY people just bluff their way through stuff.

I saw it with the bankruptcy attny that didnt know my own states exemptions but acted like she did.

I saw it with a CPA that didnt know that form 982 could be used to eliminate your tax liability on "forgiven debt"

I saw it with a consumer attny that didnt know what could be done in an execution.

I saw it in judges I talked to that didnt know the law that they were supposed to be using.

ALL these people told me absolutely, easily provable, patently false information but in an incredibly confident manner.

When I showed each and every one of them the statutes from our own states legislature website the reactions ranged from dismissive to utterly shocked.

They were all wrong. But they were all confident.

Be wary.

[TomnTex]

Well, I beat them! Got my tax papers back today ready to sign and mail off. The OC tried to collect more than thirty grand from me, when they couldn't they tried to punish me with a $3,000.00 IRS tax burden. It cost me a hundred and fifty dollars to get my taxes prepared and that's the end of it. RELIEF!!

Willing, she said that because when the OC filed the 1099-C, they were extinguishing the debt, it was no more! So, supposedly, it's over with.

I found this also on another board CB that I am going to paste from a tax guy there. Hope you don't mind, if you do, just delete it.

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cashnocredit, on 30 January 2012 - 03:48 PM, said:

nht, on 30 January 2012 - 03:09 PM, said:

Since 1) Arrow never validated and 2) you never settled, no, they can't legally issue a 1099-C to you.

No. The IRS requires companies to issue a 1099-C under certain conditions. It has nothing to do with whether the debt is "validated," appears on a credit report, is removed from the report, is past reporting or is past collection SOLs.

Actually, given the specific facts of this case, it has a lot to do with it -- please read on.

Yes, as a tax accountant, I am well aware of the 8 "identifiable events," when the creditor must issue a Form 1099-C for canceled debts. I posted a link to the original IRS 1099-C Instructions to creditors / 1099-C issuers (as opposed to taxpayers / 1099-C recipients), right here on CB just yesterday:

http://creditboards....dpost&p=4615825

nht, on 29 January 2012 - 03:14 PM, said:

Timing: it's not uncommon for taxpayers to get 1099-C's many years later. IRS Instructions for 1099-C to creditors list 8 "identifiable events" (triggers), when the creditor must issue a 1099-C for canceled debts over $600, by Jan. 31st of the following year. The issuance is optional for under $600...

http://www.irs.gov/p.../i1099ac_10.pdf

...

Note: these are 2010 and 2011 Instructions (revised 11/10/10). Don't use 2012 version (rev. 12/21/11), because Form 1099-C has changed for 2012.

Based on the specific facts as stated by OP (if I understand them correctly), I stand by my advice to dispute this Form 1099-C, effectively an unverified third-party income claim, with the state's AG, Arrow itself and, if still need be, the IRS / state tax authorities.

The OP disputed the validity of the debt in its entirety and succeeded. The CA has no standing to "forgive" or "cancel" anything, let alone the entire debt whose very existence and validity are in dispute. Otherwise we'd have literally tens of millions additional Forms 1099-C being issued in the US every year by CA's and JDB's, and that's simply not the case.

The IRS specifically has a CAUTION! to creditors, which reads, in part (font mine):

"Form 1099-C is to be used only for cancellations of debts for which the debtor actually incurred the underlying debt."

In this case, how could the CA possibly be certain that the OP is even the correct individual, let alone the specific debt details?

[willingtocope]

Willing, she said that because when the OC filed the 1099-C, they were extinguishing the debt, it was no more! So, supposedly, it's over with.

See, here's the thing. I don't think that's correct. They still might sell it to a JDB...and you still have to prove to the IRS that the debt was bogus, or pay the tax.

At the very least, you should include the 1099 in your tax return along with an explanation as to why you didn't pay taxes on it.