1099-C and Junk Debt Buyer

[motivatedfocus]

There is a 10 year old credit card debt from BofA (well past SOL) which has been sold/transferred to JDB after JDB. I have sent DV letters to each of them and never received a response. They just sell it to the next JDB/Collecter.

 

This morning I received a surprise call from Consumer Recovery Associates in which the collector demanded I pay the debt or he would file a 1099-C and I would owe the IRS the full amount of the debt.

 

Facts:

 

I never received a 1099 from BofA.

 

The debt was charged off by BofA in 1999.

 

I recorded the call. It's legal here.

 

I never received a dunning letter from them. I asked them to send whatever info they had. I'll DV them when the info is receive and would love suggestions for the letter.

 

He asked me to confirm the last four of my social by asking me "is the last four of your social ****." I told him I wouldn't share any info about my social with a stranger over the phone, but I did confirm my name. At which time, he went into his you owe us or the IRS 1099-C extortion rap.

 

I understand that even if a 1099-C was filed, I could be taxed on the amount owed as if it was income and that I wouldn't owe the entire amount of the debt...but my question is, can a Junk Debt buyer, who purchased an unvalidated debt for pennies on the dollar do this? Is this legal?

 

Suggestions and thoughts are appreciated.

[GamingG]

This morning I received a surprise call from Consumer Recovery Associates in which the collector demanded I pay the debt or he would file a 1099-C and I would owe the IRS the full amount of the debt.

I recorded the call. It's legal here.

Great job!

[Gill]

I would send Debt Validation letter first thru a certified letter to protect yourself there. PsycDoc has some postings on information for beginners that is helpful to ease you into the process. In addition, WhyChat has some letter examples for this that is very helpful. From there, if they can't validate the debt, they have nothing to claim per the FCCRA. More over, I would request that they don't contact you at your work, or home other than sending anything in writting. If the collector disregards your request, you have some more violations on the FCCRA. It's helpful that you send the letter to them in writting also.

 

For regards to your second question, yes, you can be 1099-C for any charged off debt. The IRS considers the charged off amount as income. BOFA, the original creditor would have done this. To confirm this, you can call the IRS for transcripts of your years that the debt was in question. This will tell you if BOA did report this debt as charged off, or not. If BOA reported the debt, then the collector is incorrect. It wouldn't make sense for a Original Creditor and a Collector to 1099-C someone for the same debt. However, I would validate this with a Tax Attorny and/or CPA.

[cashnocredit]

There is a 10 year old credit card debt from BofA (well past SOL) which has been sold/transferred to JDB after JDB. I have sent DV letters to each of them and never received a response. They just sell it to the next JDB/Collecter.

 

This morning I received a surprise call from Consumer Recovery Associates in which the collector demanded I pay the debt or he would file a 1099-C and I would owe the IRS the full amount of the debt.

 

Facts:

 

I never received a 1099 from BofA.

 

The debt was charged off by BofA in 1999.

 

I recorded the call. It's legal here.

 

I never received a dunning letter from them. I asked them to send whatever info they had. I'll DV them when the info is receive and would love suggestions for the letter.

 

He asked me to confirm the last four of my social by asking me "is the last four of your social ****." I told him I wouldn't share any info about my social with a stranger over the phone, but I did confirm my name. At which time, he went into his you owe us or the IRS 1099-C extortion rap.

 

I understand that even if a 1099-C was filed, I could be taxed on the amount owed as if it was income and that I wouldn't owe the entire amount of the debt...but my question is, can a Junk Debt buyer, who purchased an unvalidated debt for pennies on the dollar do this? Is this legal?

 

Suggestions and thoughts are appreciated.

 

This sounds like extortion and that's a crime.

 

Technically, you just owe the IRS taxes on the amount owed as if it were income. Were you to settle, you would owe the IRS taxes on the difference between the debt and the settement. It seems the collectors can cancel and file a 1099-C anytime they want. However, they have to file a 1099-C when another cancelation "event" occurs and the amount involved is over $800. Much to my surprise, the statue of limitations does not trigger such an event unless adjudicated with an affirmative defense and appeals have terminated.

 

http://www.irs.gov/instructions/i1099ac/ar02.html#d0e404

 

One interesting aspect is that the IRS requires the CA to keep records for 4 years after the 1099-C documenting how the 1099-C trigger occured as well as the amount. Since CAs have little incentive to declare a debt canceled because of the recordkeeping it is cheaper to just resell it for .1 cent on the dollar.

[ICANHASMUNY?]

no, they can't send you a 1099c for the full aoumt of the charge off.

 

 

http://www.ltclg.com/images/dba-opinion.pdf

 

Form 1099-C requires, among other things, that the filer be able to distinguish between the total amount of

reported discharged debt and the interest included as a portion thereof.

 

Failure to collect profits (interest and other fees) is not income.

 

Debt buyers can't do this, so legally they cannot write off or report to the IRS that they have discharged the full amount of the charged off debt.

 

and if you get a 1099C for the full charged off amount you need to report tax fraud activity.

 

http://www.irs.gov/individuals/article/0,,id=106778,00.html

 

 

 

Also, the IRS views this 'canceled' debt as income unless (a) there is a bona fide dispute concerning the debtor’s obligation to pay, ( the debtor is insolvent, c) the debt is discharged in bankruptcy. (See 26 U.S.C. §6050P; 26 C.F.R. §1.6050P)

 

 

and it's a FDCPA violation for a collector to threaten to take an action which cannot legally be taken.

Edited May 30, 2010 by ICANHASMUNY?

[cashnocredit]

no, they can't send you a 1099c for the full aoumt of the charge off.

 

 

http://www.ltclg.com/images/dba-opinion.pdf

 

Form 1099-C requires, among other things, that the filer be able to distinguish between the total amount of

reported discharged debt and the interest included as a portion thereof.

 

Failure to collect profits (interest and other fees) is not income.

 

Debt buyers can't do this, so legally they cannot write off or report to the IRS that they have discharged the full amount of the charged off debt.

 

and if you get a 1099C for the full charged off amount you need to report tax fraud activity.

 

http://www.irs.gov/individuals/article/0,,id=106778,00.html

 

 

 

Also, the IRS views this 'canceled' debt as income unless (a) there is a bona fide dispute concerning the debtor’s obligation to pay, ( the debtor is insolvent, c) the debt is discharged in bankruptcy. (See 26 U.S.C. §6050P; 26 C.F.R. §1.6050P)

 

 

and it's a FDCPA violation for a collector to threaten to take an action which cannot legally be taken.

 

Chuckle. And the debt collectors lost!

 

It's really funny to see debt collectors suing the IRS so that they don't have to file a 1099-C. Must be a real PITA for them to keep the records and separate out the interest/fees from the principal!

 

That really places in bold how hollow such threats are in most cases!. Easier to just sell the debt after a few years and let the IRS 1099-C be another collector's problem. This does explain how debts can show up decades later, long after the SOL expired, simply because if it is actually "canceled" per IRS regs they have to file a 1099-C. Isn't there some sort of SOL for debt collectors to have to file old 1099-Cs?

 

Too funny.

[ICANHASMUNY?]

http://www.irs.gov/irb/2009-41_IRB/ar11.html

 

http://www.thefederalregister.com/d.p/2009-09-17-E9-22354

 

http://www.paed.uscourts.gov/documents/opinions/09d0366p.pdf

 

Presently before this Court is Defendant Client Services, Inc.’s Motion to Dismiss in a consumer action for damages brought pursuant to the Fair Debt Collection Practices Act (“FDCPAâ€), 15 U.S.C. § 1692. Plaintiff Paula Wagner alleges that Defendant sent her a collection letter containing false, deceptive, and / or misleading representations, in violation of the Act. For the following reasons, the motion will be denied

( a couple of pages later; ) .....

3). Although that amount is clearly in excess of the $600.00 statutory floor, Defendant has failed to demonstrate that the amount, or parts thereof, are not subject to a § 1.6050P-1(d) exception. Specifically, Defendant has not argued what portion of any discharged amount is attributable to principal, interest, and any other non-principal amounts. Therefore, Defendant has not shown that Citibank was indeed required to report the Plaintiff’s discharge of indebtedness, since it is possible that less than $600.00 of any discharged amount is actually principal. Because Defendant has not provided any information on this issue, there remains the initial question of whether the collection letter’s “required to†language is literally true or false. This issue requires discovery, and therefore the Court must deny the Motion to Dismiss.4 As such, the Court does not have to explore Plaintiff’s remaining arguments to deny the Motion—the letter’s deceptive or misleading nature—at this stage.

VI. Conclusion

By failing to attribute the nature of the debt that may be discharged to principal and nonprincipal amounts, Defendant has not shown that its letter is literally true. As Defendant has failed to show the Plaintiff’s debt does not fall within the exceptions of 26 C.F.R § 1.6050P-1(d), its Motion to Dismiss is denied.

An appropriate Order follows.