1099 C from Arrow?

[smplylst]

We just recieved a 1099 C from Arrow Financial, for a credit card in the amount of 2516. with a cancellation date of 2/23/11. I DV'd them last year with a 1-2 and they deleted off all three reports. What is this about? How can they write off a debt they never provided proof they were legally able to collect? and now what do I do about this 1099?

[nht]

Since 1) Arrow never validated and 2) you never settled, no, they can't legally issue a 1099-C to you.

 

The good news is that neither Arrow nor anyone else can ever again attempt to collect on that debt from you. The bad news is that you can't just ignore the form, for tax purposes, as tempting as that might be.

 

I would immediately file a complaint with your state's AG office. Depending on what state you are in, some AG's have been known to be very effective in dealing with fraudulent or erroneous 1099-C issuance. Especially if there is a pattern involving a particular CA.

 

Then you should send a letter to Arrow (incl. ITS or not -- you'll have to decide based on your feedback from the AG, if any, and your frame of mind) with a copy of of your DV from last year and a copy of your AG complaint, demanding that they issue a Void 1099-C.

 

If if's not resolved in a timely manner, by April 17th, and you are not filing an extension, then you'll need to attach a brief statement and both the DV and AG letter copies to your Federal and state tax returns, to support your position that this is not a valid 1099-C and the amount should not be included in your taxable income.

[cashnocredit]

We just recieved a 1099 C from Arrow Financial, for a credit card in the amount of 2516. with a cancellation date of 2/23/11. I DV'd them last year with a 1-2 and they deleted off all three reports. What is this about? How can they write off a debt they never provided proof they were legally able to collect? and now what do I do about this 1099?

 

Has nothing to do with writeoffs or the FCRA for that matter.

 

The IRS requires CAs to issue a 1099-C whenever $600 or more of the original debt is forgiven/abandoned upon any of the following.

 

1. Cease collection efforts and not sell the account to another JDB.

2. Settle for less than $600 lower than the original debt.

3. Upon a final judgment in favor of the defendant based on expiration of SOL.

 

Yes, you read that right. If you win a 10 y/o, way out of SOL, debt in court because it is out of SOL you get a 1099-C.

 

If you win because they can't show the debt is yours - no 1099-C. This is one of the risks of an SOL defense.

 

There are various ways to contest a 1099-C with the IRS but it has to be based on the debt not being yours or insolvency. There are threads on this but it is not a FCRA or debt collection practice issue. Usually.

 

 

An exception is when a creditor threatens a 1099-C as a means to collect. This is an abusive debt collection practice. Just sending a 1099-C after they choose to stop collecting isn't.

[cashnocredit]

Since 1) Arrow never validated and 2) you never settled, no, they can't legally issue a 1099-C to you.

 

No. The IRS requires companies to issue a 1099-C under certain conditions. It has nothing to do with whether the debt is "validated," appears on a credit report, is removed from the report, is past reporting or is past collection SOLs.

[dash1729]

Yes, you read that right. If you win a 10 y/o, way out of SOL, debt in court because it is out of SOL you get a 1099-C.

 

It occurs to me that this raises an interesting question.

 

If long out of SOL debt can be included in an 1099-C, can I--for the purposes of determining whether I am insolvent according to the IRS' definition--also include (other) debt that is long past its SOL?

 

Let's say I have $1k in assets and $6k in total credit card bills from 10+ years ago on which no 1099-C was ever issued before now? The $6k is divided between 3 credit card issuers--$2k each.

 

ONE of the issuers permanently writes off the debt and issues a 1099-C for $2k. Can I claim that I am still insolvent since I still have assets of $1k and liabilities of $4k--even though that $4k can never be collected?

[cashnocredit]

Yes, you read that right. If you win a 10 y/o, way out of SOL, debt in court because it is out of SOL you get a 1099-C.

 

It occurs to me that this raises an interesting question.

 

If long out of SOL debt can be included in an 1099-C, can I--for the purposes of determining whether I am insolvent according to the IRS' definition--also include (other) debt that is long past its SOL?

 

Let's say I have $1k in assets and $6k in total credit card bills from 10+ years ago on which no 1099-C was ever issued before now? The $6k is divided between 3 credit card issuers--$2k each.

 

ONE of the issuers permanently writes off the debt and issues a 1099-C for $2k. Can I claim that I am still insolvent since I still have assets of $1k and liabilities of $4k--even though that $4k can never be collected?

 

Quite possibly. See page 4 under insolvency.

 

http://www.irs.gov/pub/irs-pdf/p4681.pdf

[nht]

Since 1) Arrow never validated and 2) you never settled, no, they can't legally issue a 1099-C to you.

 

No. The IRS requires companies to issue a 1099-C under certain conditions. It has nothing to do with whether the debt is "validated," appears on a credit report, is removed from the report, is past reporting or is past collection SOLs.

 

Actually, given the specific facts of this case, it has a lot to do with it -- please read on.

 

Yes, as a tax accountant, I am well aware of the 8 "identifiable events," when the creditor must issue a Form 1099-C for canceled debts. I posted a link to the original IRS 1099-C Instructions to creditors / 1099-C issuers (as opposed to taxpayers / 1099-C recipients), right here on CB just yesterday:

 

http://creditboards....dpost&p=4615825

 

Timing: it's not uncommon for taxpayers to get 1099-C's many years later. IRS Instructions for 1099-C to creditors list 8 "identifiable events" (triggers), when the creditor must issue a 1099-C for canceled debts over $600, by Jan. 31st of the following year. The issuance is optional for under $600...

 

http://www.irs.gov/p.../i1099ac_10.pdf

...

Note: these are 2010 and 2011 Instructions (revised 11/10/10). Don't use 2012 version (rev. 12/21/11), because Form 1099-C has changed for 2012.

 

Based on the specific facts as stated by OP (if I understand them correctly), I stand by my advice to dispute this Form 1099-C, effectively an unverified third-party income claim, with the state's AG, Arrow itself and, if still need be, the IRS / state tax authorities.

 

The OP disputed the validity of the debt in its entirety and succeeded. The CA has no standing to "forgive" or "cancel" anything, let alone the entire debt whose very existence and validity are in dispute. Otherwise we'd have literally tens of millions additional Forms 1099-C being issued in the US every year by CA's and JDB's, and that's simply not the case.

 

The IRS specifically has a CAUTION! to creditors, which reads, in part (font mine):

 

"Form 1099-C is to be used only for cancellations of debts for which the debtor actually incurred the underlying debt."

In this case, how could the CA possibly be certain that the OP is even the correct individual, let alone the specific debt details?

[cashnocredit]

The OP disputed the validity of the debt in its entirety and succeeded. The CA has no standing to "forgive" or "cancel" anything, let alone the entire debt whose very existence and validity are in dispute. Otherwise we'd have literally tens of millions additional Forms 1099-C being issued in the US every year by CA's and JDB's, and that's simply not the case.

 

I agree but only if the debt was not the op's debt. The op didn't say it wasn't theirs, just that they requested validation.

 

A CA can choose, for it's own reasons, not respond to a verification request and simply remove the CRA entries. It may feel that it isn't worth it to pursue the debt due to a low collectability score or perhaps they may have engaged in illegal collection efforts and want to get rid of it. None of these eliminate the requirement to file a 1099-C. However, yes, if it is unsure or unable to verify that the debt belongs to the specific consumer it may not issue a 1099-C. Generally CAs hate filing 1099-Cs since it is time, money, and headaches for them and there is zero financial benefit in doing so. Usually, they just avoid filing 1099-Cs by selling the debt to another CA and is a cause of a lot of the old zombie debt.

 

EotA:

However, attaching an explanation to the tax return with copies of the verification request and resultant removal from the CRA may well be sufficient to support a "this isn't my debt" position with the IRS.

Edited January 30, 2012 by cashnocredit

[nht]

...

Generally CAs hate filing 1099-Cs since it is time, money, and headaches for them and there is zero financial benefit in doing so. Usually, they just avoid filing 1099-Cs by selling the debt to another CA and is a cause of a lot of the old zombie debt.

...

 

Yeah, they sure do. Besides the reasons you mention, CA's and JDB's (as well as OC's) are subject to IRS Audits for compliance with the 1099-C regulations, an extra burden.

 

The Debt Buyers' Association actually sued the IRS in 2006 (DBA v. Snow) over those then-new 1099-C regulations... and lost.

[cashnocredit]

...

Generally CAs hate filing 1099-Cs since it is time, money, and headaches for them and there is zero financial benefit in doing so. Usually, they just avoid filing 1099-Cs by selling the debt to another CA and is a cause of a lot of the old zombie debt.

...

 

Yeah, they sure do. Besides the reasons you mention, CA's and JDB's (as well as OC's) are subject to IRS Audits for compliance with the 1099-C regulations, an extra burden.

 

The Debt Buyers' Association actually sued the IRS in 2006 (DBA v. Snow) over those then-new 1099-C regulations... and lost.

 

Yeah, I ran across that last year. Amazing. What's dispicable is that some of the worst ones actually use the threat to file 1099-Cs to suggest, without actually saying, that the IRS collects the money for them.

[smplylst]

sorry for the delay. I will be honest, I don't know the OC for this debt. I don't have an OC for even close to that amount. Any OC on my report is for 1100 or less. I am not sure for who, what or from when this is.

[nht]

Good. Then you know what to do.

 

No compelling reason in this case to roll over and pay an extra $400-$1,000 in Federal and state taxes you don't owe, just because a rogue CA says so.

[callofduty]

If we receive 1099-C from OC (Capital One), what about the existing account showing on the credit reports, showing "charge off" or "sold"?

[cashnocredit]

If we receive 1099-C from OC (Capital One), what about the existing account showing on the credit reports, showing "charge off" or "sold"?

A 1099-C from an OC is inconsistent with "sold" but not "charged off." It means the debt has been abandoned, not sold. If the debt has been sold then the OC should not issue a 1099-C. Whatever entity owning the debt at the point one of the IRS 1099-C triggers occurs is the entity that is required to issue the 1099-C.

[callofduty]

If we receive 1099-C from OC (Capital One), what about the existing account showing on the credit reports, showing "charge off" or "sold"?

 

A 1099-C from an OC is inconsistent with "sold" but not "charged off." It means the debt has been abandoned, not sold. If the debt has been sold then the OC should not issue a 1099-C. Whatever entity owning the debt at the point one of the IRS 1099-C triggers occurs is the entity that is required to issue the 1099-C.

 

Thank you for the clarification. Let's get into details: if OC (Capital One) sent 1099-C to debtor ($1,300), what about the "charge-off" account showing on the credit reports with incorrect balance? See the accounts from 3 credit reports (few days ago) as shown here:

 

Experian

=========================

Account Name: CAP ONE

Account Number: 1xxxxxx

Acct Type: Credit Card

Acct Status: Closed

Monthly Payment:

Date Open: 8/1/2004

Balance: $3,164.00

Terms: Revolving

High Balance:

Limit: $1,500.00

Past Due: $3,164.00

Payment Status: Charge-off

Comments: Credit line closed-grantor request-reported by subscriber

 

Equifax

====================================

CAPITAL ONE

Account Number: 1xxxxxx

Status: CHARGE-OFF

Account Owner: Individual Account.

High Credit:

Type of Account: Revolving

Credit Limit: $1,500

Term Duration:

Terms Frequency: Monthly (due every month)

Date Opened: 08/2004

Balance: $3,164

Date Reported: 01/2012

Amount Past Due: $3,164

Date of Last Payment: 02/2008

Actual Payment Amount:

Scheduled Payment Amnt:

Date of Last Activity: N/A

Date Major Delinquency First Reported: 10/2008

Months Reviewed: 89

Creditor Classification:

Activity Designator: Closed

Charge Off Amount: $2,055

Deferred Payment Start Date:

Balloon Payment Amount:

Balloon Payment Date:

Date Closed:

Type of Loan: Credit Card

Date of First Delinquency: 03/2008

Comments: Consumer disputes - reinvestigation in progress,

Charged off account

 

TransUnion

==========================

Account No.: 1xxxxxx

Condition: Derogatory

Balance: $3164

Type: Credit Card

Pay Status: Collection/Chargeoff

Remarks:

[TransUnion] Charged off as bad debt Canceled by credit grantor

Past Due: $3164

High Balance: $2055

Terms:

Limit: $1500

Payment:

Opened: 08/16/2004

Reported: 01/08/2012

Responsibility: Individual

 

Notes:

- Equifax has the much better accurate payment history than Experian and Trans Union.

- That Capital One account was issued when I was living in Nevada. I'm currently living in NY.

 

I tried to deal with Capital One on "pay for deletion" by sending the letters to them few times after I stopped the payment in April 2008 (CO in Aug 2008) due to my job layoff (found a job later), but they never replied to my pay for deletion letters.

 

At last, I read somewhere that these debts are time-barred because Capital One is located in VA with 3 years status of limitation. If that is the case, what should I do about it?