Got a CP2000 notice from the IRS due to a 1099-C from Car Repo

[Sardo Neumspa]

I had a vehicle repossessed back in 2002 which eventually showed up on my CR as a repo deficiency. Around 2006/07 I joined this board and I used Why Chat's repo deficiency letters to have this removed. I never was served with all of the notices required before the deficiency sale. About a month later, the repo was removed from my credit report. I celebrated that Why Chat's system worked.

 

Fast foward to today. I got a CP2000 Notice from the IRS as apparently the OC sent the IRS a 1099-C for the cancelled debt in 2009 which would have been 7 years from the repo. I never received this 1099-C, thus the first time I am seeing this is the copy on the 1099-C. The IRS is stating that I owe roughly $2700 in taxes due to the unreported income.

 

My question is, is the 1099-C valid? If they did not send me the required notices regarding the repo sale and the like, then the repo was invalid and they lost their ability to persue the repo deficiency. They should not have been able to go the 1099-C route when they cancelled it on their end back in 2009. Regardless, they did.

 

My question is, what I can do at this point. Am I stuck with the full payment to the IRS for the tax owed? Can this be adjusted lower? Can the 1099-C be legally cancelled?

 

thank for the input.

[Gill]

It would be best to talk to an Enrolled Tax Agent, CPA, or Tax Attorney to answer your question. It's also important to respond to the letter to prevent any collection action. Another source is the the Tax Payers Advocate, but, this would be more in a situation where you can't get anywhere with the IRS. In the event that you do call the general IRS number, I would not give them any personal information such as income, bank or other private information.

[mysticspirit25]

It would be best to talk to an Enrolled Tax Agent, CPA, or Tax Attorney to answer your question. It's also important to respond to the letter to prevent any collection action. Another source is the the Tax Payers Advocate, but, this would be more in a situation where you can't get anywhere with the IRS. In the event that you do call the general IRS number, I would not give them any personal information such as income, bank or other private information.

 

 

I have dealt with similar situations before, the IRS is not that bad to deal with (despite what some people state), I get audited every year (I guess once you are in their sights, they audit every year), one year, I failed to roll over a 401k and just spent the money because I needed to, but reported that I rolled over. I got audited but not for that reason, it was for a 1099-S (sale of real estate) that was reported but I never got a copy. All the agent cared about was the 300k they said I made on the sale. I told her how much I paid for the property and over the phone she closed out the audit permanently, and alluded to the 401k issue, but said she was not worried about that, I got a letter 6 weeks later stating it was closed forever. Honestly, I would have owed a huge penalty to the IRS for the 401k loan I never paid back and the rest I never rolled over, but she was very nice and said she had better things to do and "bigger fish to fry", end result, I owed nothing. (of course ever since the first audit, I get one every year).

 

So, my advice would be to paper amend for that year and include form 982 I think, and state you were insolvent, and fax it to them and mail in, and the audit should find in your favor. While I don't recommend speaking to the IRS for everyone, you need to have a certain confidence level in dealing with them. Be polite, and they will be polite.

[hdporter]

So, my advice would be to paper amend for that year and include form 982 I think, and state you were insolvent, and fax it to them and mail in, and the audit should find in your favor.

 

This simple advice is likely sound. Just to elaborate:

 

The IRS provides an exclusion to the reporting of income for a canceled debt to the extent that your liabilities at the time of cancellation exceed your assets. IRS Publication 4682 (Canceled Debts) discusses this in the section under "Exclusions: Insolvency": http://www.irs.gov/pub/irs-pdf/p4681.pdf

 

The basic procedure would be to amend the return and include Form 982. The language used in Pub 4682 and this form are a little arcane, so it may take several reads to get a firm handle on how to complete and submit the form. Fortunately, Pub 4682 includes a few examples at the end that should help guide by example.

 

If after thoroughly reviewing this material you're still somewhat unclear how to proceed, you should be able to find a tax preparer who will deal with this without charging an arm and a leg. (You'd be best off if you first at least do a good faith effort at completing the Insolvency worksheet -- a list of liabilities and assets -- found in Publication 4682.)

[Sardo Neumspa]

Looks like I have a lot of reading to do. In 2009, I did not have any real assets (other than retirement). A vehicle which I still owe on. I definitely had more debt (revolving) owed than my assets. I now co-own the home (with my wife) that I live in, however, it was solely in my wife's name in 2009 which was the year the 1099C was issued. (The home was in her name only after inheritance).

 

I see some info regarding "fair market value" of the vehicle. Where would I be able to figure out what the FMV was on the vehicle back during the time it was repo'd, as I would imagine that is when the FMV needs to be measured. It is 8 years and a few months since the vehicle was repo'd.

[cprems]

Get the IRS resolved FIRST - then I would do the following.

 

When did they repo the vehicle?

 

What State are you in?

 

Did they send any of the required paperwork or just fold?

 

If it was me, I would go after them for fraud and deceptive trade practices.

 

They failed to follow the UCC for repos and are NOT allowed to collect the deficient balance.

 

After this is all cleared up, file a fraudulent complaint to the IRS for an illegal 1099-C

 

I would also look into your state laws

 

 

Looks like I have a lot of reading to do. In 2009, I did not have any real assets (other than retirement). A vehicle which I still owe on. I definitely had more debt (revolving) owed than my assets. I now co-own the home (with my wife) that I live in, however, it was solely in my wife's name in 2009 which was the year the 1099C was issued. (The home was in her name only after inheritance).

 

I see some info regarding "fair market value" of the vehicle. Where would I be able to figure out what the FMV was on the vehicle back during the time it was repo'd, as I would imagine that is when the FMV needs to be measured. It is 8 years and a few months since the vehicle was repo'd.

[Sardo Neumspa]

Get the IRS resolved FIRST - then I would do the following.

 

When did they repo the vehicle?

 

What State are you in?

 

Did they send any of the required paperwork or just fold?

 

If it was me, I would go after them for fraud and deceptive trade practices.

 

They failed to follow the UCC for repos and are NOT allowed to collect the deficient balance.

 

After this is all cleared up, file a fraudulent complaint to the IRS for an illegal 1099-C

 

I would also look into your state laws

 

1) The repo was in 2002.

2) I am in North Carolina

3) They sent nothing, they folded and deleted off my reports.

 

I still need to know where does Fair Market value need to be calculated from, either 2002 when it was repo'd, or 2009 when they 1099-C'd me when they cancelled the debt. Also, where could I go to find that information?

[cashnocredit]

Get the IRS resolved FIRST - then I would do the following.

 

When did they repo the vehicle?

 

What State are you in?

 

Did they send any of the required paperwork or just fold?

 

If it was me, I would go after them for fraud and deceptive trade practices.

 

They failed to follow the UCC for repos and are NOT allowed to collect the deficient balance.

 

After this is all cleared up, file a fraudulent complaint to the IRS for an illegal 1099-C

 

I would also look into your state laws

 

1) The repo was in 2002.

2) I am in North Carolina

3) They sent nothing, they folded and deleted off my reports.

 

I still need to know where does Fair Market value need to be calculated from, either 2002 when it was repo'd, or 2009 when they 1099-C'd me when they cancelled the debt. Also, where could I go to find that information?

 

YES-Deal with the IRS FIRST!

 

You are fortunate they screwed up the paperwork and folded. IRS taxes are (or should be) a fraction of what the deficiency would be. The amount of imputed taxible income is as of the repo. It doesn't include fees and interest until 2009 when the 1099-C was filed. Fraud doesn't apply since they are obligated to file a 1099-C and they recieve no benefit from filing a 1099-C however they may have violated IRS regs by waiting such a long time without either selling the account to a CA or actively trying to collect the debt. The 1099-C may also be erroneous. That may provide a way to contest the 1099-C in addition to insolvency at the time.

 

I echo that the IRS is actually pretty reasonable. There is a lot of information on their website about mechanisms to contest tax issues. I did a successful DIY with them for assessments in the 7 figures and found them pretty straightforward and fair. If you can calculate what the deficiency was you might get the IRS to accept that and just assess a tax based on that which is hopefully less than the 1099-C.

[bonusmom]

I have a similar situation from 2006 and am wondering if after the OC issues the 1099C, can they still attempt to collect on the debt? My thought is that they've been given the tax benefit and I've paid the penalty for the debt so the OC can't double dip.

 

Is my thinking flawed?

 

I am in Cali and the date of the last payment was in late Oct 2006. The acct was charged off in 2/2007 and the car repoed in 4/07. Date of sale was 6/07. The required notices were not sent. The SOL in my state is 4 years.

[frank22]

I have a similar situation from 2006 and am wondering if after the OC issues the 1099C, can they still attempt to collect on the debt? My thought is that they've been given the tax benefit and I've paid the penalty for the debt so the OC can't double dip.

 

Is my thinking flawed?

 

I am in Cali and the date of the last payment was in late Oct 2006. The acct was charged off in 2/2007 and the car repoed in 4/07. Date of sale was 6/07. The required notices were not sent. The SOL in my state is 4 years.

 

That in itself shouldn't be an issue. The company could just declare it as income. There would be no double dipping. On the other side, I think a company would only issue a 1099-C if they had totally written off the debt.

[cashnocredit]

I have a similar situation from 2006 and am wondering if after the OC issues the 1099C, can they still attempt to collect on the debt? My thought is that they've been given the tax benefit and I've paid the penalty for the debt so the OC can't double dip.

 

Is my thinking flawed?

 

I am in Cali and the date of the last payment was in late Oct 2006. The acct was charged off in 2/2007 and the car repoed in 4/07. Date of sale was 6/07. The required notices were not sent. The SOL in my state is 4 years.

 

That in itself shouldn't be an issue. The company could just declare it as income. There would be no double dipping. On the other side, I think a company would only issue a 1099-C if they had totally written off the debt.

 

They are required to file a 1099-C if any of the following occur:

1. No active attempt to collect the debt for (I think) 36 months.

2. If they forgave the debt

 

In the event they just didn't try to collect and that triggered the 1099-C requirement it's possible but unlikely they could still try to collect the debt. Filing a 1099-C doesn't extinguish the debt unless the reason was det forgiveness. It would be less hassle on their part to just sell it to a CA before the 1099-C trigger but it's becoming harder to do for debts that are time barred as this one apparently is.

[frank22]

They are required to file a 1099-C if any of the following occur:

1. No active attempt to collect the debt for (I think) 36 months.

2. If they forgave the debt

 

In the event they just didn't try to collect and that triggered the 1099-C requirement it's possible but unlikely they could still try to collect the debt. Filing a 1099-C doesn't extinguish the debt unless the reason was det forgiveness. It would be less hassle on their part to just sell it to a CA before the 1099-C trigger but it's becoming harder to do for debts that are time barred as this one apparently is.

 

You are right, it says here 36 months.

 

http://www.irs.gov/instructions/i1099ac/ar02.html#d0e193

[Sardo Neumspa]

You are fortunate they screwed up the paperwork and folded. IRS taxes are (or should be) a fraction of what the deficiency would be. The amount of imputed taxible income is as of the repo. It doesn't include fees and interest until 2009 when the 1099-C was filed. Fraud doesn't apply since they are obligated to file a 1099-C and they recieve no benefit from filing a 1099-C however they may have violated IRS regs by waiting such a long time without either selling the account to a CA or actively trying to collect the debt. The 1099-C may also be erroneous. That may provide a way to contest the 1099-C in addition to insolvency at the time.

 

I echo that the IRS is actually pretty reasonable. There is a lot of information on their website about mechanisms to contest tax issues. I did a successful DIY with them for assessments in the 7 figures and found them pretty straightforward and fair. If you can calculate what the deficiency was you might get the IRS to accept that and just assess a tax based on that which is hopefully less than the 1099-C.

 

I am fairly confident (99% confident) that the total they put on the 1099-C is the exact amount of the repo deficiency, and it does not include any interest whatsoever, it is the exact total from 2002. The deficiency was for just under $9000, and the tax bill is about $2700.

 

Still, does anyone know where I could go to figure out Fair Market Value of the vehicle in either 2009 or 2002 whichever I need to use for FMV?

[frank22]

Still, does anyone know where I could go to figure out Fair Market Value of the vehicle in either 2009 or 2002 whichever I need to use for FMV?

 

I don't know where to go, but I am quite sure you will be looking for 2002's.

[cprems]

My guess is that it would be from 2002. Use kelly blue book to figure it out. Remember you need to see if you were insolvent in 2002 - this is the tax year in dispute.

 

http://www.kbb.com/ under used car section

 

How much did they charge off?

 

Did they subtract the money they got from the sale of the vehicle?

 

There should be a number on the 1099-C for you to call and ask questions.

 

I would ask:

 

How much it sold for?

 

Ask if any fees have been added?

 

And any other questions htat you may have regarding this issue - other people hopefully will chime in.

 

 

You are fortunate they screwed up the paperwork and folded. IRS taxes are (or should be) a fraction of what the deficiency would be. The amount of imputed taxible income is as of the repo. It doesn't include fees and interest until 2009 when the 1099-C was filed. Fraud doesn't apply since they are obligated to file a 1099-C and they recieve no benefit from filing a 1099-C however they may have violated IRS regs by waiting such a long time without either selling the account to a CA or actively trying to collect the debt. The 1099-C may also be erroneous. That may provide a way to contest the 1099-C in addition to insolvency at the time.

 

I echo that the IRS is actually pretty reasonable. There is a lot of information on their website about mechanisms to contest tax issues. I did a successful DIY with them for assessments in the 7 figures and found them pretty straightforward and fair. If you can calculate what the deficiency was you might get the IRS to accept that and just assess a tax based on that which is hopefully less than the 1099-C.

 

I am fairly confident (99% confident) that the total they put on the 1099-C is the exact amount of the repo deficiency, and it does not include any interest whatsoever, it is the exact total from 2002. The deficiency was for just under $9000, and the tax bill is about $2700.

 

Still, does anyone know where I could go to figure out Fair Market Value of the vehicle in either 2009 or 2002 whichever I need to use for FMV?

Edited February 19, 2011 by cprems

[frank22]

In regards to further collection, this says it can be state dependent, and try to go for a lack of documentation. Then they will not issue the 1099.

 

The state law effect of a form 1099-C varies. Connecticut views it as a signed writing that releases the claim, California does not. Kansas views it as having discharged the claim, but the reasoning of the judge in that case was flawed. In any case where a debtor has defenses to assert against a creditor's claim, SOL should be the last one used because its successful use triggers the requirement for the creditor to issue a form 1099-C. If a defense such as lack of documentation is successful, the 1099-C issue is never reached.

 

When you negotiate to settle an account, you can negotiate for whatever additional terms you want (nobody guarantees you will get those terms, or that those terms will be honored, but you can try). Potentially the settlement agreement could recite that the amount the creditor is claiming is doubtful and disputed an as a result no 1099-C form will be issued. You could also negotiate that the creditor will not communicate further with credit reporting agencies about the account for any reason whatsoever (keep in mind that "pay for delete" where they actually take it off is much more difficult to obtain), a result that leaves you in control of the reporting and doesn't alert other creditors that you are "putting out" ... (and you should wait to dispute the account until all other defaulted accounts are settled or past the statute of limitations). Ideally, you would also negotiate for a liquidated damages clause in case they fail to honor their agreement so there would be no argument over what they would have to pay you if you took them to court, but good luck getting that one...

 

http://wiki.answers.com/Q/If_a_creditor_sends_you_a_1099-C_is_the_debt_%27forgiven%27_and_how_will_it_appear_on_your_credit_report

Edited February 19, 2011 by frank22