caramia1225

Received 1099C out of the blue.. Can they do that???

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Hi All,

 

I have an old debt with Capone that has been in collection for a while. Just received a 1099C like they forgave the debt. I have never spoken to Capone or any of the collectors they transferred the debt to.

 

My credit report shows that this account was closed 10/2009 and "charged off as bad debt". I have a collection letter from a third party for this account dated 11/2010. 

 

How can Capone now just out of the blue issue me a 1099C for 2012? Can they do that?

 

About to do some research, but wanted to see if anyone has experience with this.

 

 

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They can do it. I'v found where they have gone back 30 years. Legal, probably not, but they are getting away with it. Lot of info on this board about the 1099-C. Research it, read it and learn.

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Go to www.irs.gov and do a search on 1099c.  You'l find there are a bunch of things that "trigger" when a creditor is required to issue a 1099c.  And, it doesn't mean they have "forgiven" the debt...it just means that now, according to the IRS rules, you owe taxes on the found income.

 

ETA.  If the debt is less than $600, they're not required to issue a 1099c...but you still owe the taxes.

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I recently came across this explanation.  It is actually the IRS, not the creditor that is to blame for sending it to you-

 

The IRS has for quite some time required banks and government entities to issue a 1099C for debt that was forgiven. The IRS thinking has been that if you borrowed money and never paid back the money, then that borrowing should be taxed as income.
Most charged-off debt is sold by original creditors to a debt buyer at a discount. The debt buyer then attempts to collect the debt. Around 2005 or so, there was a change in the IRS instructions that for the first time required debt buyers to issue a 1099c. The Debt Buyers Association was very much opposed to this requirement and filed suit against the IRS (DBA v Snow). The DBA lost that litigation in 2006.
The holder of the debt has no vote in the matter. They are required to issue the 1099c. The IRS has established a list of eight different situations under which a 1099c must be issued. Those triggers are:
1. A discharge in bankruptcy under Title 11 of the U.S. Code for business or investment debt
2. A cancellation or extinguishment making the debt unenforceable in a receivership, foreclosure, or similar federal or state court proceeding.
3. A cancellation or extinguishment when the statute of limitations for collecting the debt expires, or when the statutory period for filing a claim or beginning a deficiency judgment proceeding expires. Expiration of the statute of limitations is an identifiable event only when a debtor's affirmative statute of limitations defense is upheld in a final judgment or decision of a court and the appeal period has expired.
4. A cancellation or extinguishment when the creditor elects foreclosure remedies that by law end or bar the creditor's right to collect the debt. This event applies to a mortgage lender or holder who is barred by local law from pursuing debt collection after a power of sale in the mortgage or deed of trust is exercised.
5. A cancellation or extinguishment due to a probate or similar proceeding.
6. A discharge of indebtedness under an agreement between the creditor and the debtor to cancel the debt at less than full consideration.
7. A discharge of indebtedness because of a decision or a defined policy of the creditor to discontinue collection activity and cancel the debt. A creditor's defined policy can be in writing or an established business practice of the creditor. A creditor's practice to stop collection activity and abandon a debt when a particular nonpayment period expires is a defined policy.
8. The expiration of nonpayment testing period. This event occurs when the creditor has not received a payment on the debt during the testing period. The testing period is a 36-month period ending on December 31 plus any time when the creditor was precluded from collection activity by a stay in bankruptcy or similar bar under state or local law.

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This is interesting ........ I've been on this board for a couple of years now and have never seen this tactic employed by OC's until just very recently ......... and there seems to be quite a few posters with the same situation lately.

Should we / can we develop a strategy to address this?

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I recently came across this explanation.  It is actually the IRS, not the creditor that is to blame for sending it to you-

 

The IRS has for quite some time required banks and government entities to issue a 1099C for debt that was forgiven. The IRS thinking has been that if you borrowed money and never paid back the money, then that borrowing should be taxed as income.

Most charged-off debt is sold by original creditors to a debt buyer at a discount. The debt buyer then attempts to collect the debt. Around 2005 or so, there was a change in the IRS instructions that for the first time required debt buyers to issue a 1099c. The Debt Buyers Association was very much opposed to this requirement and filed suit against the IRS (DBA v Snow). The DBA lost that litigation in 2006.

The holder of the debt has no vote in the matter. They are required to issue the 1099c. The IRS has established a list of eight different situations under which a 1099c must be issued. Those triggers are:

1. A discharge in bankruptcy under Title 11 of the U.S. Code for business or investment debt

2. A cancellation or extinguishment making the debt unenforceable in a receivership, foreclosure, or similar federal or state court proceeding.

3. A cancellation or extinguishment when the statute of limitations for collecting the debt expires, or when the statutory period for filing a claim or beginning a deficiency judgment proceeding expires. Expiration of the statute of limitations is an identifiable event only when a debtor's affirmative statute of limitations defense is upheld in a final judgment or decision of a court and the appeal period has expired.

4. A cancellation or extinguishment when the creditor elects foreclosure remedies that by law end or bar the creditor's right to collect the debt. This event applies to a mortgage lender or holder who is barred by local law from pursuing debt collection after a power of sale in the mortgage or deed of trust is exercised.

5. A cancellation or extinguishment due to a probate or similar proceeding.

6. A discharge of indebtedness under an agreement between the creditor and the debtor to cancel the debt at less than full consideration.

7. A discharge of indebtedness because of a decision or a defined policy of the creditor to discontinue collection activity and cancel the debt. A creditor's defined policy can be in writing or an established business practice of the creditor. A creditor's practice to stop collection activity and abandon a debt when a particular nonpayment period expires is a defined policy.

8. The expiration of nonpayment testing period. This event occurs when the creditor has not received a payment on the debt during the testing period. The testing period is a 36-month period ending on December 31 plus any time when the creditor was precluded from collection activity by a stay in bankruptcy or similar bar under state or local law.

 

 

I've got this same list saved on one of my computers, where all my other important files are stored. Problem with having six or seven computers. Had forgotten about it. Like I keep forgetting the special rules for fighting a JDB on DV in Texas. Boy, my mind is about gone. That's what happens when you get near 70. Or, is that the new 20?........lol

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Hey, thank you all for your input and information.

 

As far as a strategy to fight this?

 

I am looking into not fighting the actual 1099c, which is probably a losing battle. Once the IRS has this filed by the creditor, they are looking for it from you, and tangling with them is not the way to go IMO.

 

I just found out about possibly filing an IRS form 982 with the 1099c. It is my understanding so far that this form exempts you from paying tax on the 1099c amount if you are insolvent ( amount of your liabilities exceed your assets ).

 

Here is the IRS link http://www.irs.gov/uac/Form-982,-Reduction-of-Tax-Attributes-Due-to-Discharge-of-Indebtedness-(and-Section-1082-Basis-Adjustment)  If this link does not work ( I was having problems with it ) just google "IRS form 982" and it will come up in search.

 

I am still looking into how to properly use it. I am certainly in a financial situation where I would be considered insolvent. I imagine many others who have received a 1099c on the board are too. That's one way to get rid of this thing.

 

Will post the info I come up with on using this.

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Pub 4681  explains how to fill out form 982.  As I keep saying, in order to qualify for "insolvency" its more complicated than it would seem.  You have to document ALL your assets...401k, cash value of life insurance, DOCUMENTED fmv OF YOUR HOUSE.  In effect, you need to qualify for a BK7 without using any exemptions.

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Thanks for name of the instructions. Yes, I would never imagine that anything with the IRS is ever simple...lol

 

Just want to be very careful to fill out their forms correctly with everything they ask for. Certainly don't want to risk audit either. Actually, risk of a true audit is extremely low, but screwing up the paperwork on filing this form can cause a big mess.

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Pub 4681  explains how to fill out form 982.  As I keep saying, in order to qualify for "insolvency" its more complicated than it would seem.  You have to document ALL your assets...401k, cash value of life insurance, DOCUMENTED fmv OF YOUR HOUSE.  In effect, you need to qualify for a BK7 without using any exemptions.

 

IMO, filing Form 982 is better than bankruptcy.

There's no filing fee, no attorney's fees, no means test, no credit counselling, no risk of losing property, no 341 meeting, no BK trustee

who gets a piece of the action if he can liquidate your property.

The paperwork is less.

There is no BK on your credit report, and, in reality, on your record for life.

Your tax return is private, whereas your BK filing is a public record, in which you reveal everything you own and all your debts as well.

If you fill out the worksheet and find you are not insolvent, then you will owe taxes on the cancelled debt, probably at a 15% rate. Assuming

you don't have other deductions to offset it.

I talked to a retired federal employee (not IRS) who thought the IRS would be easier to deal with than the creditors, in terms of setting up

payment plans.

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I  talked to a retired federal employee (not IRS) who thought the IRS would be easier to deal with than the creditors, in terms of setting up

payment plans.

That basically true, although the IRS does grill you pretty throughly on "available income".  I can testify to this having just paid off a tax bill from 2004...$115 / month for 8 years, plus $675 to finally settle it.  The questions they ask are similiar to what a trustee would ask for a Bk 13, but, again, their 'exemptions" are different.

 

Kind of a toss up...but...with a BK, you have the courts to make your creditors play nice.  Paying off a 1099c does not make the debt go away...you still might wind up in court.

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On the note of BK... That was a consideration of mine a while back, but it did not make sense because all of my debts were pretty old. It wound up that the BK would stay on my credit report longer than if I just let the time period on the debts expire. There were two creditors pursuing me, but I elected to fight them. One is settled and the other is close to a conclusion now.

 

So, if I had went ahead and filed the BK, I would have effectively reset the clocks on all those old debts remaining on my credit report, plus have the BK ding. I think that may be something people sometimes overlook when declaring BK... the age of their debts and if it makes sense.

 

To me, the only time you should declare BK, is if you are getting very close to having a judgement against you and you have things to protect. Otherwise, it doesn't seem to make any sense to declare BK.. all the expense and hassle and resetting clock on the debts appearing on your report, and the BK ding. When you can just let the debts sit there for 7 years and then get them taken off.

 

For example... I have debts 5 years old. No one is coming after me because after SOL. I can get them off my report in 2 years. But if I declare BK on them.... Now I just parked them on my credit report for a new 10 years!

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I almost think we need a sticky thread on either this board or the collection board that discusses 1099-Cs and the issues that surround them. This is a complex topic that is producing quite a few threads.

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Nope.  Doesn't apply to the OC. Only CAs.

 

If OCs sue me, they have to use an attorney who is subject to FDCPA.  And if the accounts are sold to JDBs, as most of them are by now, they are subject to the law as well.

 

And some states have consumer laws that apply FDCPA standards to OCs.  California's Rosenthal Act comes to mind.

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For example... I have debts 5 years old. No one is coming after me because after SOL. I can get them off my report in 2 years. But if I declare BK on them.... Now I just parked them on my credit report for a new 10 years!

Nope.  The tradelines for the debts themselves are governed by the "date of first delinquency" not the date of the IIB.  They would have fallen off at 7 yrs.  The Bk will remain for 10 yrs, but the underlying debts will be gone. 

 

Now, since you didn't BK, you still have outstanding debts that you owe and someone may still come after you.  Even the SOL doesn't protect you.  If the OC or some JDB deciides to sue, and you don't show up, they get a judgement.  Even if you do show up, you have to get the judge to agree the SOL has run.  And, even then, they can still try to collect...they just can't use the courts to do it.

 

The one good thhing about a BK is that it stops all of that...period.

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If OCs sue me, they have to use an attorney who is subject to FDCPA.  And if the accounts are sold to JDBs, as most of them are by now, they are subject to the law as well.

 

And some states have consumer laws that apply FDCPA standards to OCs.  California's Rosenthal Act comes to mind.

True...although some OCs use regular, non-CA lawyers.  The FDCPa may not apply.

 

JDBs, on the other hand, are usually easy to fend off...if they don't use "sewer service" to get a judgement.

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I almost think we need a sticky thread on either this board or the collection board that discusses 1099-Cs and the issues that surround them. This is a complex topic that is producing quite a few threads.

I second this.

 

It is a complex issue. Especially the 982 issue.

 

Seems this year, more then before too menay are seeing this.

 

Please do a sticky

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I was reading 1099c issues in here and other sites, it is actually quite confusing.

Some said that even without 1099c, you must report forgiven debt as income.

I am just wondering if IRS would penalized you for not reporting the forgiven debt as income if you didn't receive 1099c from creditor and then receive 1099c 5 years after.

Ex. Forgiven debt $3000 on 2005 and no 1099c that year

Creditor issued 1099c on 2012 putting 2005 as date debt was forgiven

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Without a 1099-C, the IRS has no way of knowing that the debt was "forgiven" and neither does the debtor. Yeah, you are suppose to report it but how do you know it was forgiven? Especially in this day and age when you can get call for a debt that was defaulted on when Nixon was President.

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Without a 1099-C, the IRS has no way of knowing that the debt was "forgiven" and neither does the debtor. Yeah, you are suppose to report it but how do you know it was forgiven? Especially in this day and age when you can get call for a debt that was defaulted on when Nixon was President.

In a CC settlement letter, you know that part of the debt is forgiven if you settled for less than the actual amount you owe.

For the creditor, might not be a problem not giving out 1099c at the soonest.

But is that the same case for the debtor?

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If you settled a debt for less than owed and you know that, then yes, you must include the portion you did not pay as income on your tax return regardless of whether you received a 1099-C or not. However, that is a small subset of those who owe debts.

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