More 1099-C questions.

[Sniper.308]

Just got a 1099-C from NCO Management Inc. yesterday for $2,847. I paid them off middle of last year. WTF! This blind sided me cause I had done my taxes and sent them e-file. Crap what do I do? Will the IRS take care of this or am I going to get audited? I read from the search files but none of them pertain to my specific situation. I'm sure that I need to declare it but how is it taxable income, I paid them off, they didn't send me any money. Am I going to get more of these things from the other CA I paid off? (Pre CB)

[flacorps]

You're gonna need to file an amended return (1040X) and attach all your 1099-Cs. If you were insolvent both before and after the payments, you don't have to take the 1099-Cs into income (form 982). If not, you could write a letter and attach it and take the position that you paid all you really owed, and that the debts had been improperly inflated and were in dispute and were ultimately compromised with a discount, not partial forgiveness.

 

It may fly, it may not.

[IDare]

Hmmm... let's say a JDB purchases title to a debt with a face value of $5,000. They pay $100 for the debt. They settle for $2,500 and "write off" the other $2,500. Then they claim credit for "forgiven debt" of $2,500 on their taxes and send the consumer a 1099-C for it.

 

The JDB isn't the one who extended that credit and suffered that LOSS. How are they entitled to the tax benefit?

 

I think it's time for the IRS to kick some JDB flowers.

[Frisbee]

Is anybody else smelling a rat here? Did the JDB's have a seminar? I seem to remember threads recently about NCO, ASSET and LVNV doing this.

 

I've been looking at these threads and reading up on 1099's and IRS rules. I can't (I'm not a lawyer nor an accountant) see how these 1099's will hold up when issued by a JDB.

 

Having said that, I also wonder IF they are legit. Are these salamanders really sending copies to the IRS? I have the ability to send any of you a 1099. That does NOT mean you actually received a dime from me. Merely sending a 1099 and actually having tax law behind it seem to be two different things.

 

I don't see how anybody, with the exception, of the OC can forgive debt.

 

IF I were to receive one of these, you better believe that before I fork over a dime to anyone, I'm checking to make sure I really owe it. I would contact every agency, starting with IRS, that I could think of.

 

Does anybody know how you would find out IF in fact the IRS got a copy of the 1099? Also, just like a letter from the JDB that you "owe" money does not always hold up, meaning it's not a fact or in any way true, why would receiving a 1099 make it true? I'm calling my tax accountant, but I bet he's never heard of this. This smells bad.

[psp]

I agree. I don't see how a JDB can legally issue a 1099-C, unless you could get them to prove IN WRITING how much they paid for the debt, not for what they "claimed" to have. Might be a fun new way to turn the screws to JDB's.

[IDare]

If anything, the JDB's are trying to screw over the IRS this way. Looks to me like they're trying to claim a "loss" they never incurred in the first place. Plus the OC has already CO'd the debt and taken the tax consequence THERE.

 

Tax fraud, anyone???

[keepmine]

It would be interesting to get something in writing from the IRS. I understand we need to layoff posting links for awhile but, go to clla.org and on a scroll on the left there is a notepad about 1099C's in bk. The very last point does address a collection agency sending out the forms.

[flacorps]

If they bought a debt, it doesn't matter what they paid, they have the right to "forgive" the whole of it (if they want).

 

JDBs don't "forgive" in IMHO. They compromise with debtors, and they make a fat profit.

 

IRS calls monies you receive and don't have to pay back "cancellation of indebtedness" income (or COD for short). The principal would certainly qualify, the interest, fees, etc. may or may not.

 

Arguably the amount of principal not paid should cause COD in the year of the settlement. But JDB accounts are usually mostly interest, penalties, collection fees, etc. and the principal is fairly small. And I bet JDBs collect more than the principal virtually every single time they settle, no matter how much of a discount they give the debtor.