View Archives by Month:May 2013
-- Franklin D. Roosevelt
June 11 2012, 8:24 PM
Receiving a Form 1099-C on discharged debt does not always mean you owe tax. In a recent case a man who owed on his credit cards failed to pay up, and the credit card company eventually wrote off his debt.
More than 10 years later, a firm that acquired the rights to the written off debt from the credit card company contacted him to reattempt collection. Unfortunately the state’s debt collection statute had already run out.
The individual protested, and the new firm ceased its collection efforts. But they decided to issue him a Form 1099-C reporting debt cancellation income for that year. The IRS expected the amount listed on the 1099-C to be included in income.
But the Tax Court disagreed, with the IRS’s view, since the debt was discharged years ago, the 1099-C should have been issued when the debt was written off. So he eludes the tax bill tax on the forgiven debt
Typically the normal exclusions for waived debts include: No income tax is due if you are insolvent at the time of the discharge or if you have filed for bankruptcy,
(Stewart, TC Summ. Op. 2012-46).