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Cancellation on old debt -- IRS notice

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 State just in case its applicable:  Virginia


Backstory summary - Job loss led to unpaid credit card debt. Last payment received by creditor was in 2010. I don't know how to prove this as all reports of this debt have fallen off credit reports. I used to keep old copies of credit reports, but I have moved a number of times in the past few years and potentially stupidly got rid of some stuff.

I just got a notification from the IRS that I did not report a cancellation of debt on my 2016 taxes, whereas Discover reported it to the IRS. As such, they're suggesting I owe them money, plus penalties and interest. Approx 2k.

My questions are.... 

Is the last payment date of 2010 (actually might've even been 2008 or 2009) relevant, and if so what could I do to help prove that?
SOL for credit card debt is 3 years, correct? So how could they have reported a cancellation of debt past this time period?
If I was never sent a 1099, can they still report it as cancellation of debt?
If I was never sent a 1099, but the CoD is 'valid', how can I be responsible for non payment penalties and interest when I had no idea about it in the first place?

Any advice?

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Guest usctrojanalum

The statute of limitations is irrelevant for COD purposes.  Not sure what can be done about not knowing that you got the 1099-C... would you qualify for insolvency?  That could be a way around it. 

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9 minutes ago, usctrojanalum said:

The statute of limitations is irrelevant for COD purposes.  Not sure what can be done about not knowing that you got the 1099-C... would you qualify for insolvency?  That could be a way around it. 

I don't know.  I'll have to research insolvency.  Thanks for the reply!

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I mentioned in another thread recently:

Find out your net worth: gross assets - gross liabilities.  ANY debt is a liability, whether you borrowed from your parents or for a bank mortgage. Figure out your net worth BEFORE this debt was discharged.  I will assume $2000.  

If your net worth was < 0, AFTER the discharge, you are involvent, you don't owe taxes, but you will have to show that to the IRS.  I listed all my debts and liabilities, to show I was insolvent.  Suppose you were under water by $3000, then $2000 was discharged, now you are underwater by $1000 still, you don't pay the taxes.  

If your net worth was > 0 BEFORE the discharge, you were solvent, you pay the taxes.  Suppose your net worth was $1000, with the discharge your net worth is now $3000, you owe the taxes on the entire $2000.  

It gets tricky if you were insolvent before the discharge, but solvent afterwards.

Suppose you were under water by $1000.  The $2000 debt is discharged, now your net worth is $1000.  You pay taxes only on the $1000, NOT on the entire amount.  

 

 

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