1099C Question

[schmitzy84]

I am currently, and have been for about three months,  in a legal battle with Bank of America over an account that isn't mine.  I received a 1099C in the mail for the account in question with a discharge date of AFTER the legal paperwork was filed and served to BoA.  I have alerted my lawyer about this but I am unsure of how this will affect me filing my taxes.  I called the IRS to ask their "experts" and was told they that they had no idea how to handle this as it is such an unusual issue.  Any ideas would be helpful. 

[willingtocope]

One of our members (DiveMedic) had a similar situation 4 or 5 years ago.   The case was with a JDB and eventually, the civil court found it was NOT his debt...but the tax court held that because he was given a 1099c, it was...and he was charged penalty and interest for not paying taxes on time.

 

So...your safest route would be to include the 1099c in your "income" for 2013, pay the taxes, and then continue to fight it in court.  If its the OC and its truly not your debt, you might prevail...but, you're probably going to have to bring suit against the OC.

[schmitzy84]

I have already filed suit against BoA.  I was shocked to get the 1099C because they apparently discharged the debt after having been served with the suit.  The amount listed on the 1099C is also weird because it looks like a discharge of only part of the balance, which makes me think they got a hold of the person who's account it is and settled (alleged debt was for ~$7k and the discharged amount is ~$4k).  

[willingtocope]

If I understand the IRS gibberish correctly (who does?), BofA has the option to only report the principle (what they allege you borrowed) and not the penalty and interest.  That might explain the difference...

[schmitzy84]

I'm also trying to figure out how to declare insolvency.  The IRS publication states that its supposed to be from when they discharged the debt, which on the 1099C states November 2013 (a full 30 days after they were served with the lawsuit).  I have no actual idea of when the account was supposedly defaulted on as the listing on my credit report states only the amount supposedly owed and when the account was open.  One lists last payment as 3/2010 and the other two list last payment as 3/2009.  Its a mess and any thing I do with regards to declaring insolvency with regards to amounts for other credit responsibilities will be guesses as best as I don't know what date to use. 

[CreditVortex]

My latest defintive/best guess answer to the issue of 1099C's

From MY research, personal conversations with a 20 year IRS employee and my experience with helping others file taxes during the last 35 years I feel that I can give a novice's interpretation of the US TAX code pertaining to an issuance of a 1099C from a forgiven/cancelled debt.  Here goes.

This only pertains to cancelled credit card debt.  Foreclosures and medical debts are not in my realm of expectation or responsibility.

1.    When an authorized establishment issues a 1099C for a given debt a 1099C has to be issued within 36 months from the date of their written off/charged off/cancellation date.  It doesn't mean you are no longer responsible for the debt with the OC. (Unless they code the form with a code 'G' which in essence means they have given up on the collection process, and they have the option to sell the debt to a CA/JDB.)  If it is coded with any other code then they still own the debt and can continue attempts to collect and/or also have the option to sell the debt to a CA/JDB.  A CA/JDB CAN NOT issue a 1099C see pg Pub 4681.  http://www.irs.gov/p...s-pdf/p4681.pdf

2.    When/If you receive a 1099C then you must claim the debt on your 1040 Line 21, if you were insolvent on the date noted on the 1099C then the debt can be exempt from taxes.  YOU MUST file a 982 for each 1099C you receive.  If you claim insolvency then you DO NOT list the amount on Line 21 but must attach the corresponding 982 to your return and document proof of the insolvency claim using the Pub 4681 worksheet (don't file worksheet just keep for your records).  The IRS will match up the 1099C they receive from the OC with your 982 that notes the correct amount of cancelled debt.  If the IRS wants proof of insolvency then you will receive an invite either in person or be asked to provide documentation to prove your insolvency (keep all correpondence and balance sheets handy for the dreaded event).

3.    The IRS expects you to claim all taxable income and pay taxes on those amounts.  So if you have other debts that are in question and you feel that you should be taxed then you need to include those amounts on Line 21 and have a letter of explanation attached to your return see http://www.irs.gov/u...llaneous-Income .  I am not telling you to avoid paying taxes on any amount you deem as income.  But you can only file a 982 if you have received a 1099C, and that form then notifies the IRS that you are claiming insolvency for that debt.

    NOTE:  I made the mistake of entering the amount on Line 21 then attaching a 982 to claim insolvency but paying the taxes both Fed and State on the income, unless the IRS decides to allow the exemption for insolvency at a later date then it was a $200 combined learning lesson for me.

[willingtocope]

1.    When an authorized establishment issues a 1099C for a given debt a 1099C has to be issued within 36 months from the date of their written off/charged off/cancellation date.  

 

I'll admit its been awhile since I looked at this in depth, but its my understanding that the "36 month" rule applies to when they stop contacting you, not the WO/CO date.  In other words, they can take a charge against accrued income (CO) in 2014 and call you every 6 months for the next 5 years and not be required to issue the 1099c until 2022. 

[CreditVortex]

You may be right but who knows.  Once again it's your word against theirs unless you record/have complete documentation of their contacts.  I was reporting what I see and what I surmised from my reading and the evidence on the 1099C that I was issued from Chase.  The 1099C has been around for many years but there was very little concern until the economy went in the toilet and more and more tax preparation firms started noticing that many people were receiving them.   I read somewhere that there are 25% of the tax filers that are getting them for inclusion on their returns.   I think the IRS needs to revisit their rules and rewrite them, there's a saying in corporate America that when in doubt - REORGANIZE!