qbert

how long can a creditor 1099-C you?

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i have a discover acct, last pay was in march of 2010

no contact from creditor since last collection letter in january 2014

they 1099C'd for effective date 12/31/17, event code G ("Decision or policy to discontinue collection." per IRS)

from creditcards.com:

Q: Why am I getting a 1099-C for old debt?

Unfortunately, creditors have a lot of wiggle room about when to report canceled income to the IRS. Statutes of limitations vary by state and by type of debt, but creditors are not required to file a 1099-C at that time since they can continue to try to collect on a debt indefinitely.

Consumer advocates argue that under IRS guidelines, creditors should send a 1099-C three years after there has been no activity on the debt, but they acknowledge the rules are unclear. And plenty of taxpayers have been getting 1099-Cs for debt that's many years – or even decades – old.

If this happens to you, first try calling the creditor. "Sometimes when you go to the creditor, it turns out it was a mistake and they will issue an amended one," says Greg Fitzgerald, an attorney in Orange County, California, who specializes in debt.

If that's not the case, you will need to include the 1099-C on your tax return. A tax professional can then help you evaluate your options. You can either try to explain to the IRS why it should have been filed a long time ago and make that case as part of your tax return. Or it may be easier to simply use one of the exemptions to avoid paying on the amount. 

However, the age of the debt can work against taxpayers, Bode says. The time of financial hardship that caused the debt to go unpaid may have passed, leaving the taxpayer with reduced ability to exclude the debt from income because of insolvency.    

^^that last part in bold is me right now

any escaping this? There is no way i can claim any sort of insolvency in 2017. Its well past SOL of course...not sure that helps here.

 

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You can claim insolvency if that's the case (that at the time immediately before the 1099-C was issued, you had more overall debt than overall assets) - with the exception explained below by BackFromTheDebt.

I was issued a 1099-C a few years ago, even with the added amount from the 1099-C as income, I was still insolvent so didn't have to pay tax on it, I filled out an IRS Form 982 and included it with my return.

This link explains it pretty well IMO: https://taxmap.irs.gov/taxmap/pubs/p4681-002.htm#en_us_publink100052679

IRS link with explanation (and insolvency worksheet on page 6): https://www.irs.gov/pub/irs-pdf/p4681.pdf

IRS Form 982: https://www.irs.gov/pub/irs-pdf/f982.pdf

 

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2 hours ago, RyanEX said:

You can claim insolvency if that's the case (that at the time immediately before the 1099-C was issued, you had more overall debt than overall assets). I was issued a 1099-C a few years ago and didn't have to pay tax on it, I filled out an IRS Form 982 and included it with my return.

This link explains it pretty well IMO: https://taxmap.irs.gov/taxmap/pubs/p4681-002.htm#en_us_publink100052679

IRS link with explanation (and insolvency worksheet on page 6): https://www.irs.gov/pub/irs-pdf/p4681.pdf

IRS Form 982: https://www.irs.gov/pub/irs-pdf/f982.pdf

 

Actually, even if you were insolvent, you may have to pay taxes if the debt forgiveness made you solvent.

Example 1:  You are $1500 underwater, and you get a 1099-C for $1000.  At that point you are now $500 underwater, still insolvent, don't pay taxes on it.

 

Example 2:  You are $500 underwater, you get a 1099-C for $1000.  At that point you went from being $500 underwater to solvent by $500.  You have to pay taxes ONLY on the $500, NOT on the entire $1000.

 

Example 3:  You are solvent.  You get a 1099-C for $1000.  You have to pay taxes on the entire $1000.  

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yes ive been working hard last few years, and have restored my credit and paid down a lot on my student loans and mortgage.

Insolvency would be a real stretch, could i still claim all the CC debt that "went away" that hasnt already been settled via 1099C or dismissed w/prejudice. i doubt it gets me there but worth a look. Its all out of SOL/credit reporting period but i suppose until a 1099 is issued the debt still exists

 

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I think I just read the same article on creditcards.com.  It says some 1099-Cs are issued long after the SOL is over.

"Consumer advocates argue that under IRS guidelines, creditors should send a 1099-C three years after there has been no activity on the debt, but they acknowledge the rules are unclear. And plenty of taxpayers have been getting 1099-Cs for debt that's many years – or even decades – old."

Here's the article:  https://www.creditcards.com/credit-card-news/1099-c-tax-form-questions-answers-1282.php

 

The IRS has a form (4598) to report an incorrect 1099-C.   If you feel the balance is wrong, you can try to correct it.  Here's a link to the form:  https://freedom-school.com/citizenship/form-4598-amended.pdf

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