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Debt Past Statute of Limitations and Collection Threatens to Issue 1099-C

December 27th, 2011 · 2 Comments · Collection Agencies

by Kristy Welsh

(Last Updated On: May 7, 2015)

Q. Can a collection agency file a 1099-C on a debt that the statute of limitations has ran out on? Any help would be appreciated – they’ve been calling, and threatening to file.

A. Your question brings up two points a) can a collection agency continue collection efforts after the statute of limitations has run and b) can a collection agency issue a 1099-C.

On the first point, once a debt is past the statute of limitations, is it even legal to collect on the debt? The statute of limitations is the length of time a company has to sue you on a debt in court. The FTC held a round table on this subject in 2009.

Many representatives from state’s attorney general’s office were present and issued their opinions on this matter. Some held that as long as the collection agency doesn’t sue, it’s legal to continue collection activities. Texas and Alaska’s state AG’s held this view. However, Georgia, Ohio and New York held that it was illegal to collect on a debt past the statute of limitations. A call to your state attorney general or consumer protection agency should be able to answer your state’s position on this matter if your state wasn’t one of those I listed. While the FTC has issued an opinion that they think collecting on old debt is unethical, they didn’t go so far as stating that it was illegal.

On your last point, is it legal for a collection agency to issue a 1099-C at all? My opinion is that it it not. A 1099-C is basically a tax form issued to you and the IRS by a company saying that you earned income. The IRS has ruled that forgiven debt should be considered income, and therefore if you settle on a debt, the amount forgiven should be considered income.

You haven’t a) settled with the collection agency and also you haven’t officially had the debt collection agency prove that b) the debt is yours and c) the collection agency owns the debt. Therefore, they shouldn’t be issuing you a 1099-C at all, in my opinion, even if it wasn’t past the statute of limitations.

Therefore, let them threaten you – you can remind them that they are threatening to take an action which cannot be legally taken, and this goes against the Fair Debt Collection Practices Act (FDCPA). If they do issue an 1099-C, you can appeal this to the IRS. For now, I would send them a letter stating you don’t want them to contact you any further. This is also your right under the FDCPA.

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2 Comments so far ↓

  • Bob Rees

    I’ve been told by a collection agency, Alliance Receivables, that even though my collection is over the SOL for the state of California, because the state placed a judgment on the alleged debt and then sold it to the collector, that the SOL didn’t apply. Is this correct?

  • Mike

    I know that this is an older blog entry but I think it’s important to note that the IRS is not easily persuaded that a 1099-C for old, out of statute debt is invalid. When the IRS receives a 1099 for a taxpayer, they presume that it’s accurate and it’s up to the individual to prove why it is not. Of course, with old debts, even those previously paid or discharged in bankruptcy, that might be difficult. With that said, it can be done just take a look at the case of Stewart v Commissioner from 2012 – http://www.ustaxcourt.gov/InOpHistoric/stewart2.sum.WPD.pdf

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