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Determined1

1099-C: How to correct credit reporting balance to $0?

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I received a 1099-C last year for a closed business credit card from an original creditor (account closed in 2009). Despite the issuance of the 1099-C, the full amount of the charge off is still reporting on my credit reports. My understanding of 1099-C's and credit reporting is if the original creditor intends to report to the credit bureaus, it should now be reported as: "Balance Due $0."  I had one other account fall into this scenario and that bank changed its reporting to "Balance Due $0".

 

I plan to dispute the legitimacy of the charge off, the amount stated on the 1099-C, and how it is now reported to the credit bureaus. I am considering litigation or arbitration of the dispute. I think the 1099-C / credit reporting issue may be an FCRA violation, but having a hard time locating the correct rule or statute to support me. Can anyone advise what rule or statute states that post issuance of a 1099-C the credit reporting amount should be $0 ? 

 

Thank you.

 

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Nope. That is the problem with the 1099-C program. Even though they claim to the IRS that they "forgave" the debt, they can still collect on it. Hence, there is no violation here from what I can see.

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Hi @whocares, I'm not asking whether they retain the right to collect, which has court rulings on both sides of that issue.

 

I'm asking: what rule or statute states that post issuance of a 1099-C the credit reporting amount should be "Balance Due$0" ? 

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@Determined1

 

FDIC v. Cashion, 4th Circuit Court of Appeals, 2013

 

The plain language of the regulation leads us to conclude that filing a Form 1099-C is a creditor's required means of satisfying a reporting obligation to the IRS; it is not a means of accomplishing an actual discharge of debt, nor is it required only where an actual discharge has already occurred.

Citing subsection (a) of the regulations discussed above, the IRS responded that it "does not view a Form 1099-C as an admission by the creditor that it has discharged the debt and can no longer pursue collection." In the second letter, the IRS assured a concerned creditor that filing a Form 1099-C satisfies the reporting requirements of statute and implementing regulations, neither of which "prohibit collection activity after a creditor reports by filing a Form 1099-C.

 

It doesn't prohibit a creditor from attempting to collect a debt.  That means that there's still a balance to collect.

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@BV80 thank you for your reply. It seems my question is being interpreted purely as whether the OC retains the right to collect. That's not what I'm asking (and I know you took the issue one step further in your answer).  Let me elaborate...

 

There is case law on both sides of the issue re whether an original creditor can collect after they've issued a 1099-C. You posted case law that says they can still collect. However, in the bankruptcy case:  William Stanley REED, Debbie Elaine Reed, Debtors., United States Bankruptcy Court, E.D. Tennessee, May 14, 2013, the Court Stated:

 

"It is inequitable to require a debtor to claim cancellation of debt income as a component of his or her gross income and subsequently pay taxes on it while still allowing the creditor, who has reported to the Internal Revenue Service and the debtor that the indebtedness was cancelled or discharged, to then collect it from the debtor.  …… The court does not agree with the argument that because a Form 1099-C can be corrected or amended, it cannot constitute an admission by a creditor that a debt has, in fact, been discharged or cancelled and that the debtor is no longer indebted thereon."

 

Please see:  http://www.forbes.com/sites/peterjreilly/2012/06/09/tax-court-rules-1099-c-from-portfolio-recovery-associates-not-valid-for-year-issued/

 

(please also not the second case in the Forbes article re Portfolio Recovery and 1099-C's)

 

My opinion regarding an OC's right to collect or whether a legitimate debt still exists posts 1099-C is based on the case I posted.

 

Re my question on post 1099-C credit reporting - I have one creditor (a top 10 bank in the country by size) who, after the issuance of their 1099-C changed the reporting to "Balance Due: $0".  What would cause one bank to consider the issuance of a 1099-C to extinguish the debt on a consumer's credit report, but another bank (also a top 10 bank in the country by size) insist on reporting the charged off amount in full?

 

There must be some method to their madness.

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@Determined1

 

Unfortunately, TN is in the 4th Circuit, and the 4th Circuit's ruling would prevail.

 

In Mennes v. Capital One (2014), the WI District Court addressed both Cashion and Reed.  The court agreed with Cashion.

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This is a good thing. If a debt was discharged last year and it is still listed on credit report, you can count it towards total indebtedness and increase amount for the purpose of insolvency.

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In my case, the bank made a further mess by issuing the 1099-C in 2013 to a corporation that was dissolved in 2010. They also included charges that have since been deemed fraud by the CFPB - charges for credit monitoring services their customers never ordered or received.  I have quite a few solid reasons to dispute the 1099-C, but the issue that is causing me a headache is the continued credit reporting, not the tax issue. That's why I keep trying to drill down on whether rules exist regarding the credit reporting post issuance of 1099-C, as the banks are all over the map in how they report in these instances.

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Realize that if a 1099-C is issued after BK, there are no taxes and the reporting rules follow that of the BK rules. In this case, I have to agree with BV80 that they can still report a balance due on your CR even after issuing a 1099-C.

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@WhoCares1000 No BK or insolvency here (you may be referring the bankruptcy case I posted?)  I'm simply agreeing with another bank's reporting, Forbes, and multiple court rulings in my favor. One thing I've learned, resolving these kind of issues is 33% law, 33% fact and 33% strategy. In this case, I'd say its 50% strategy, or more.

 

In my scenario, I am disputing the reporting of an account that within the dollar amount stated on both my credit report and the 1099-C are fraudulent charges by the bank as determined by the OCC and CFPB. In addition, the account was charged off in 2009, which puts it outside of SOL for debt collection purposes. So If I sue over the credit reporting, or arbitrate, is the bank likely to spend money to enforce their reporting of a business account that will fall off in 1 year, which has no proof of individual responsibility and fraudulent charges by the bank, as well?  We shall see ;-)

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P.S. What is so very helpful in the feedback in this thread is the legal basis for which I will move forward. I've read on multiple credit, debt, and legal advice message boards and websites that state unequivocally that the credit reporting post 1099-C must be changed to "Balance Due $0."  Not a single site put forth an IRS regulation or statute to state this is required. While I believe the area is still up for debate and has conflicting legal rulings, its very helpful for me to learn the potential weakness of any argument I may make, as well as the strengths. Always great feedback here!

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"In my case, the bank made a further mess by issuing the 1099-C in 2013 to a corporation that was dissolved in 2010. "

 

If this ever becomes an issue of paying taxes on the forgiven income you can choose to challenge in tax court on that basis - 1099C has to be issued for correct amount and correct year.  Also taxes on corporation would have been owed in tax year 2010, and 2013 is potentially beyond IRS sol on tax collection for 2010.  I have the name of a book somewhere if you would need to pursue that angle.  

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