Fought tax bill (and won) after receiving a bogus 1099-C from PRA

[mrdoon]

As some of you know, last March, I received a notice from the IRS that I had underreported my income for 2010 by more than $2700 as a result of 1099-C filed by Portfolio Recovery Associates. I argued my case with the Automatic Under Reporter unit but, this past August, I was issued a Notice of Deficiency with a tax bill (including interest) of over $800. While this isn't a huge sum, I objected primarily because the debt that generated this supposed income was defaulted on in the mid-90's and I believe that I had evidence that an "identifiable event" had occurred long before 2010.

Rather than paying up, I decided to take my case to Tax Court. I filed my petition in November, received the IRS' answer in December and was contacted by the IRS Appeals Office in February. I provided my Appeals Officer with documents (monthly statements and letters) as well as an outline of how case law supported my position. I had my Appeals Conference this morning and I am THRILLED to say that, after reviewing the facts, the appeals officer sided with me - I do not have to include the $2700+ from cancellation of debt in my income and no additional taxes are due!!!!

My only "gripe" is that this decision does not include the taxes that I have already paid on a 2nd, smaller 1099-C issued by PRA for the same year. At the time, I wasn't sure how to fight it but I knew that the IRS would have record of it so I included it. (For the record, Turbo Tax doesn't give you much info about how to deal with 1099-Cs.) I included this amount in my petition to the Tax Court, indicating that I was due a refund for any taxes paid ($175 by my count) so, if we had actually gone to court, I think I could have gotten a ruling on this as well. The appeals officer indicated that I could file an amended return but I will have to talk it over with my wife and tax advisor.

 

My case was quite similar to another recent Tax Court case - Stewart v Commissioner (2012) - same original creditor, same junk debt buyer, default occurred in mid-90's, 1099-C issued years later after debtor sent cease communication letter, etc.. My petition was different (I stayed away from issues that were dismissed by the Court) but this opinion is a must read for anyone who receives a 1099-C for an old, out of statute debt. Each case is different but I believe that the thing that swayed the appeals officer was the amount and type of documentation I provided. If you don't have anything because it's an older debt, you'll probably have a tougher fight.

Thanks for the support and info I found on this board while I was researching this issue and preparing my case.

 

[cashnocredit]

Good job. You had a pretty good case.

[ICANHASMUNY?]

Good Job!

[KYBOSH]

Excellent news.

Does this only apply to cancellations issued by JDBs?

Or can it be used for OCs as well?

 

Did Portfolio actually send you the 1099c back in 2010?

Edited March 16, 2013 by KYBOSH

[cashnocredit]

Basically, the more time that has passed from the DOFD and the more intermediaries the better case you have that the 1099-C cancelation date was wrong.

[mrdoon]

Excellent news. Does this only apply to cancellations issued by JDBs? Or can it be used for OCs as well? Did Portfolio actually send you the 1099c back in 2010?

KYBOSH - I don't know how this might apply to a 1099-C issued by an OC. I tend to agree with cashnocredit that it fits best with older, out of statute debts but you might want to look at the Tax Court cases of Gaffney v. Commissioner (2010) and Kleber v. Commissioner (2011) as they deal with 1099-Cs issued by the OC. In both cases, the Court determined that the debt had been discharged in a previous year.

 

One thing you want to watch out for is how far back you are looking. In my case, I showed that the initial identifiable event occurred 9 or 10 years before the 1099 was issued which is outside of the IRS' statute of limitations for collecting taxes. If you point them to a year that is within the SOL, you may find yourself with an even larger tax bill.

 

I received one of the two 1099-C's filed by PRA - the 2nd was sent to an old address and was apparently trashed or returned. I didn't find out about that one until I received the letter from the IRS in 2012.

Edited March 21, 2013 by mrdoon

[breeze]

Nice work!