Got An Audit Letter From AZ Dept Of Revenue Today For 2010 Return

[DisgustedInTheDesert 0]

Stating that due to a 1099c form submitted by ECast Settlement  that I had failed to declare 'forgiven-debt' income of over 1200.00.

I have never had contact with this company, or any debt collector in more than a decade (filed Chapter 13 in 2003, but voluntarily withdrew a few months later) and whilst Googling this firm am beginning to realize that there is something very wrong here...

Aside from hiring a tax attorney, which I really can't afford to do...wondering if anyone could offer advice on how to proceed?

Thanks!

[WhoCares1000 743]

OK, before we panic, let us look at this.

First thing is, did the feds already catch up with you on this. If not, you will want to consider that too. However, that will be later in the discussion.

 

The highest bracket in Arizona is 4.54%. That means that on this debt, the tax due will be 54.48 before interest and penalties. My guess is worst case scenario, that will work out to 10% per year for 5 years compounded. That works out to 35.34. Do you really want to fight over that? You might want to check in the time limits for AZ to do an audit however. If their time limits are the same as the IRS, they might be SOL.

Your bigger issue is Federal though. States and the IRS work together on issues such as these so if AZ caught up with you, the federal government could too. The time limit for returns is normally 3 years. However, if this represented 25% of your income, that increases to 6 years. There is no time limit for Fraud but that will be a hard hoop for the IRS to jump through in this case. If you do get audited, that bill comes to about $500 if you were in the 25% bracket.

Note that you also might be able to claim insolvency if you debts at the time totaled more than your assets by the amount of this debt. It is tricky however.

If you can prove you never received the 1099c from the creditor, you could claim damages. That will be tricky too on your part and you would have to pay the taxes first.

[Goody_Ouchless 506]

@WhoCares1000 makes great points. Also, we got behind on Federal taxes to the tune of 7K and they are happy with $100/month, so it's not necessarily a disaster.