A$$et and 1099-C forms - They are relying on a tax

[Shawnee]

I've been looking into this business of A$$et trying to write off the face value of the debts they buy using the 1099-C cancellation of debt form. They are basing this on the IRS tax code section 6050P. The problem here is that they are not a lender. Here is the relevant part of 6050P:

 

B. Amounts that are defined as “indebtedness†under §1.6050P-1© of the existing final regulations but that do not arise in the context of a money-lending transaction

One commentator requested clarification of the information reporting requirements for amounts that are owed to an organization but that do not arise in the context of a money-lending transaction. The commentator suggested that the definition of indebtedness in §1.6050P-1© of the existing final regulations should be revised to require reporting only of discharged amounts that would give rise to income under section 61(a)(12) and that the definition should cover only amounts arising in money-lending transactions. Alternatively, the commentator suggested that amounts owed that arise in non-money-lending transactions should not be “indebtedness†for purposes of section 6050P unless, and until, reduced to judgment. This commentator also suggested that discharges of amounts such as fees, penalties, administrative costs, and fines should not be subject to reporting under section 6050P regardless of whether the transaction is a money-lending transaction. Section 1.6050P-1(d)(3) of the existing final regulations provides an exception to reporting for discharges of these amounts only in lending transactions.

 

In particular, the commentator was concerned about amounts arising in leasing transactions. An organization that engages only in transactions that are treated as leases, and not as sales, for Federal tax purposes is not required to report under section 6050P, because leasing is not lending money for purposes of section 6050P©(2)(D) and §1.6050P-2(a). However, if an organization is otherwise engaged in a significant trade or business of lending money and is also engaged in leasing transactions, the existing final regulations under section 6050P would require the organization to report the discharge of any amount owed to it, including fees, administrative costs, and fines for the non-lending leasing transactions.

 

The IRS and the Treasury Department may issue future guidance under section 6050P addressing the requirements for reporting amounts discharged in non-lending transactions. Pending issuance of future guidance, applicable entities will not be subject to penalties under section 6721 and section 6722 for failure under section 6050P to report amounts discharged in non-lending transactions.

 

By the way, factoring is also discussed in this analys of 6050P:

 

http://www.irs.gov/irb/2004-45_irb/ar08.html

 

Now we move on to A$$et's SEC Form 10-Q which is a requirment with the Securities and Exchange Commission. Here we find some interesting statements directly from them:

 

We have been purchasing and collecting defaulted or charged-off accounts receivable portfolios from consumer credit originators since the formation of our predecessor company in 1962. Charged-off receivables are the unpaid obligations of individuals to credit originators, such as credit card issuers, consumer finance companies, retail merchants and utility providers. Since these receivables are delinquent or past due, we are able to purchase them at a substantial discount. We purchase and collect charged-off consumer receivable portfolios for our own account as we believe this affords us the best opportunity to use long-term strategies to maximize our profits. We currently do not collect on a commission or contingent fee basis.

 

Here they admit they purchase debts at a "substantial discount". At the same time they admit that 6050P is still uncertain in their regard:

 

the costs and uncertainties related to compliance with Internal Revenue Code

Section 6050P and the related Treasury Regulations and the issuance of 1099-C information returns;

 

The entire SEC filing:

 

http://biz.yahoo.com/e/051104/aacc10-q.html

 

While A$$et has gotten away with flagrantly violating the FDCPA and FCRA, this business of claiming the full face value of debts they buy for pennies or less on the dollar is going to land them in serious hot water with the IRS.

[bookworm]

I think it's time for the 1099 recipients to start contacting the IRS fraud division and stirring up some muck.

 

BW

[belleama]

Where should people make complaints? Not that I have one or anything just for future reference.

[Shawnee]

Where should people make complaints? Not that I have one or anything just for future reference.

 

I would say the best way to make a complaint would be to contact the IRS taxpayer advocate.

 

The more I read into this the more I think the JDBs have sunk to a new low. Only this time they are messing with the IRS.

[HelloKitty]

How can two companies write off the same debt?

 

You owe company A $500. They sell it to company B for $20. Company A writes off $480. Company B can't write off $20 AND the original $480, it was already written off.

 

Neat trick, I'd rat them out to the IRS. Sounds like Asset is the new Enron with scheme.

 

DISCLAIMER- Kitty is not a tax professional.

[tht78]

Great researching there Shawnee. I'll be intrested in seeing how this will play out. I hope they go down for it.

[pryan67]

excellent disclaimer from Kitty....to my knowledge, NONE of us are tax professionals...so keep that in mind during the battle

[The Zoo]

I am not a tax professional either (the IRS drives me nuts!) but what Kitty said did make sense. How can more than one company write off the same debt? Hmmmm, I'd like to see how this plays out.

[IDare]

Consider in all of this that:

 

1) JDB's are not extending credit, not lending money, and NOT suffering a LOSS.

2) The OC charged off/wrote off the debt in THEIR tax filings

3) The FTC classifies JDB's as COLLECTION AGENCIES, not CREDITORS

 

My understanding, based on the sick amount of research I did about "factoring companies" is that to the FTC the term "debt purchasers" is referring to those who buy CURRENT debts, not charge offs. Those who buy CO's are DEBT COLLECTORS. I think that's the key here.

[IDare]

And btw, the motivation for JDB's to issue 1099-C's is surely to be able to claim LOSS instead of PROFIT, thus potentially grossly skewing their tax liability. I think a good investigative reporter could have a FIELD DAY with this...

[bookworm]

excellent disclaimer from Kitty....to my knowledge, NONE of us are tax professionals...so keep that in mind during the battle

 

I am... ...although I'm "retired". I'm not sure if they are filling them out and sending them because they are writing it off...or if this is just another method to screw everybody. And I don't profess to know squat about the accounting practices of those clowns. I'm just thinking that there is definitely potential for them to have some fraud going on. They can mess with the FTC but they darn sure shouldn't mess with the IRS! ;-)

 

BW

[Linx04]

Your right about the invesigative reporter. I am going to inform Channel 7 action news and Fox 2 news in Detroit I think they would love to know about this

[Shawnee]

excellent disclaimer from Kitty....to my knowledge, NONE of us are tax professionals...so keep that in mind during the battle

 

Neither am I, the tax code is one of the most complicated codes in existence. However, after speaking to a CPA today and looking at the IRS discussion I linked in the OP I am convinced this is in violation of the tax code. People need to report these facts to the IRS if they get a 1099-C from a CA/JDB.

[IAmMyKidzMom]

Your right about the invesigative reporter. I am going to inform Channel 7 action news and Fox 2 news in Detroit I think they would love to know about this

 

 

Hmm...my local news would be very much interested in this as well.

[IAmMyKidzMom]

So in other words....if you settle a debt with an OC, they DO have the right to send you the 1099-C, but JDBs/CAs don't, correct? Am I understanding this correctly?

[Frisbee]

Shawnee, excellent research and good food for thought. There are a few threads floating around today about the same topic. Thought I'd link them here.

 

http://creditboards.com/forums/index.php?showtopic=154523

 

http://creditboards.com/forums/index.php?showtopic=154621

 

http://creditboards.com/forums/index.php?showtopic=154695

[Shawnee]

So in other words....if you settle a debt with an OC, they DO have the right to send you the 1099-C, but JDBs/CAs don't, correct? Am I understanding this correctly?

 

Correct. JDBs do not purchase debts for the full face value, as A$$et admits in their SEC filing. According to the CPA I spoke with this afternoon, they can not file a 1099-C for an amount over what they paid for the debt. Also, section 6050P of the tax code only refers to lenders, JDBs are not lenders.

[Shawnee]

Shawnee, excellent research and good food for thought. There are a few threads floating around today about the same topic. Thought I'd link them here.

 

http://creditboards.com/forums/index.php?showtopic=154523

 

http://creditboards.com/forums/index.php?showtopic=154621

 

http://creditboards.com/forums/index.php?showtopic=154695

 

Thanks Frisbee. Since we had several threads on the 1099-C forms I called a CPA who referred me to that section of the tax code.

[HelloKitty]

So in other words....if you settle a debt with an OC, they DO have the right to send you the 1099-C, but JDBs/CAs don't, correct? Am I understanding this correctly?

 

The only loss they can claim is if you pay them less than the amount they bought the original debt.

 

IOW, they buy a debt for $50 and you pay them $20. They could claim a $30 loss.

 

AGAIN: not a tax professional

[Frisbee]

So in other words....if you settle a debt with an OC, they DO have the right to send you the 1099-C, but JDBs/CAs don't, correct? Am I understanding this correctly?

 

Correct. JDBs do not purchase debts for the full face value, as A$$et admits in their SEC filing. According to the CPA I spoke with this afternoon, they can not file a 1099-C for an amount over what they paid for the debt. Also, section 6050P of the tax code only refers to lenders, JDBs are not lenders.

 

 

I don't think enough of us are really reading the SEC filing. I have a little edge on that topic and that filing coupled with this new exploration into the IRS sector will (IMO) put them into a very bad legal position.

 

The JDB's just may be on extremely thin ice. Anybody got an icepick?

[IDare]

So in other words....if you settle a debt with an OC, they DO have the right to send you the 1099-C, but JDBs/CAs don't, correct? Am I understanding this correctly?

 

Correct. JDBs do not purchase debts for the full face value, as A$$et admits in their SEC filing. According to the CPA I spoke with this afternoon, they can not file a 1099-C for an amount over what they paid for the debt. Also, section 6050P of the tax code only refers to lenders, JDBs are not lenders.

 

 

I don't think enough of us are really reading the SEC filing. I have a little edge on that topic and that filing coupled with this new exploration into the IRS sector will (IMO) put them into a very bad legal position.

 

The JDB's just may be on extremely thin ice. Anybody got an icepick?

 

I got their icepick right here. It used to be the anchor for a USS Warship.

 

Shawnee, have I told you lately that you rock? Thanks for the great research. The more the better!!!

[radi8]

I think it's time for the 1099 recipients to start contacting the IRS fraud division and stirring up some muck.

 

BW

 

 

http://www.irs.gov/compliance/enforcement/...=106778,00.html

[belleama]

Look you guys that got that 1099-C forms may be entitled to a reward

 

Although you are not required to identify yourself, it is helpful to do so. Your identity can be kept confidential. You may also be entitled to a reward.

 

http://www.irs.gov/compliance/enforcement/...=106778,00.html link provided by Radi8

[ouray]

I just emailed the business editor at msnbc a link to this thread w/a short note on the subject

[Shawnee]

Shawnee, have I told you lately that you rock? Thanks for the great research. The more the better!!!

 

Thanks IDare. I really have to credit the CPA who referred me to that IRS analysis on 6050P.

 

By the way, digging a little further into this, there is a limitation of six years for filing the 1099-C, so if anyone gets a 1099-C from a JDB regarding an alleged debt that is over six years old you can also use that angle.

 

This is just assumption on my part, but it is becoming clear to me why A$$et has been purchasing a lot of out of SOL paper lately. Their most profitable debt purchases are within SOL debts, buying out of SOL debts and using them to write off the face value must be doing a lot for their bottom line, that is until they get caught.