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drummer55

1099 c and settlements with collection agencies

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okay heres a fun one.   

I had one account with midland funding in arbitration and one account with MCM that had sat for 3 years that I disputed and tried to get removed via the CRA's and directly with them.  MCM  never responded to my dv requests.  

I applied for a  mortgage but got denied till I got rid of the above "collection" accounts

I sat on it for a day and decided to settle.  Needed the house and couldn't afford to sit through Oregon's laughable arbitration (since it was after my closing date ) just so I could go back to court again.  

I settled with Midland funding for 1/7 of the total.
I called and settled with MCM for 1/2 of the total. 

In neither case do I admit to oweing the debt just that I had to pay them off to get my mortgage.  

wait for it......

yep just got 2 1099 c's  from midland funding. one for each account and the amount of debt discharged is screwy on both of them.


The information I have been finding on the boards is all over the map.  file this form, write a hand written note, declare insolvency, sacrifice a goat on a full moon in July....etc..etc...

Is there a clear, concise direction in this forum or elsewhere as to what my options are in this matter?

To keep it focused lets forget the insolvency route wouldnt work in my case.

thanks

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Go to the IRS website and research it. There are a lot a variables, you need to see what the IRS says to do based on your current income level. 

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@drummer55

 

The collection agencies shouldn't be giving you a 1099C.  

 

http://www.creditinfocenter.com/wordpress/2011/12/27/debt-past-statute-of-limitations-and-collection-threatens-to-issue-1099-c/

 

http://www.creditinfocenter.com/wordpress/2009/07/13/can-a-collection-agency-issue-a-1099-c-for-settled-debt/

 

However, once issued, the only way you can remove your obligations is to convince the IRS that the form was issued erroneously or file an insolvency using form 982. From IRS publication 4681: 

 


How to report the insolvency exclusion. To  show that you are excluding canceled debt from income under the insolvency exclusion, attach Form 982 to your federal income tax return and check the box on line 1b. On line 2, include the smaller of the amount of the debt canceled or the amount by which you were nsolvent immediately before the cancellation. You can use the worksheet on page 6 to help calculate the extent that you were insolvent immediately before the cancellation. You must also reduce your tax attributes in Part II of Form 982 as explained under Reduction of Tax Attributes, later.

 

Example 1—amount of insolvency more than canceled debt. In 2012, Greg was released from his obligation to pay his personal credit card debt in the amount of $5,000. Greg received a 2012 Form 1099-C from his credit card lender showing the entire amount of discharged debt of $5,000 in box 2. None of the exceptions to the general rule that canceled debt is included in income apply. Greg uses the insolvency worksheet to determine that his total liabilities immediately before the cancellation were $15,000 and the FMV of his total assets immediately before the cancellation was $7,000. This means that immediately before the cancellation, Greg was insolvent to the extent of $8,000 ($15,000 total liabilities minus $7,000 FMV of his total assets). Because the amount by which Greg was insolvent immediately before the cancellation was more than the amount of his debt canceled, Greg can exclude the entire $5,000 canceled debt from income. When completing his tax return, Greg checks the box on line 1b of Form 982 and enters $5,000 on line 2. Greg completes Part II to reduce his tax attributes as explained under Re­duction of Tax Attributes, later. Greg does not include any of the $5,000 canceled debt on line 21 of his Form 1040. None of the canceled debt is included in his income.
 
Example 2—amount of insolvency less than canceled debt. The facts are the same as in Example 1 except that Greg's total liabilities immediately before the cancellation were $10,000 and the FMV of his total assets immediately before the cancellation was $7,000. In this case, Greg is insolvent to the extent of $3,000 ($10,000 total liabilities minus $7,000 FMV of his total assets) immediately before the cancellation. Because the amount of the canceled debt was more than the amount by which Greg was insolvent immediately before the cancellation, Greg can exclude only $3,000 of the $5,000 canceled debt from income under the insolvency exclusion. Greg checks the box on line 1b of Form 982 and includes $3,000 on line 2. Also, Greg completes Part II to reduce his tax attributes as explained under Reduction of Tax Attributes, later. Additionally, Greg must include $2,000 of canceled debt on line 21 of his Form 1040 (unless another exclusion applies).

 

 
One reader received a 1099-C from Portfolio Recovery Services, complained to their state attorney general's office and the IRS and got the 1099 voided: 
 

 

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You could also simply pay the tax. The tax is probably 25% of the amount depending on your income so lets say in your case, the total of the 1099C is $1700, the tax would be $425. Still a savings over the total amount of the debt after payments. I know most do not like this answer but sometimes, it is best to just accept it and move on.

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@WhoCares1000  The  problem with that is the debt is still collectable.  Creditors are required by the IRS to issue a 1099c when one of the "triggers" occurs.  None of the triggers make the debt go away.

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Some great stuff with the IRS and their 36 month testing period.  I think I might be able to effectivally argue it from this angle.  It was written off in 2009 and in 2012 a 1099 c should have been issued by the OC and wasnt.   Thus the CA's 1099 C  that was issued in 2013 is too late and can not be properly reported.

 

http://www.aicpa.org/Press/PressReleases/2013/DownloadableDocuments/AICPA-Letter-to-IRS-on-Cancellation-of-Indebtedness.pdf

 

 

Similarly, in Stewart, TC Summary Opinion 2012-46, a credit card company
discharged the taxpayer’s debt in 1996 but sold the debt to a collection company. The debt was later sold to
another company which issued a Form 1099-C in 2008.  The court found that the 36-month
testing period ended in 1999. Thus, the Form 1099-C was issued several years too late with the
result that the cancellation of debt income could not have been properly reported as the year when the debt actually was eligible for being included in income had long past.
 
 

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@WhoCares1000  The  problem with that is the debt is still collectable.  Creditors are required by the IRS to issue a 1099c when one of the "triggers" occurs.  None of the triggers make the debt go away.

First off, this is a settled debt which means if the OP hangs on to their paperwork, no creditor will have standing to collect any thing else anyways. If they do intend to try to collect anything else, I am sure that whether they send a 1099c or not would have no bearing on them doing so.

Also, if there happens to be another payment on this debt within 3 years of the issuing of the 1099c, you can amend your tax return to get a tax refund for that change. After 3 years, unless you are in Ohio or Kentucky, most state SOLs will have run and then you can just tell anyone trying to collect the debt what they can do with it.

Paying the tax is an option that should not be ignored simply because it is inconvenient.

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