If it’s been a rough couple of years for you, you’re not alone. Maybe your income was cut, you lost your job, or you had large expenses like medical bills. You may have fallen behind on bills, fielded collection calls and managed to settle some of your debts for less than the full balance you owed. You’re hoping the worst is behind you.
But then, to add insult to injury, you’ve received a 1099-C Cancellation of Debt form in the mail listing the forgiven amount. Suddenly, you’ve got a potential tax nightmare.
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According to the IRS, if a debt is canceled, forgiven or discharged, you must include the canceled amount in your gross income, and pay taxes on that “income,” unless you qualify for an exclusion or exception. Creditors who forgive $600 or more are required to file Form 1099-C with the IRS. Nearly 2.7 million of these forms were processed by the IRS in 2009 and that number is expected to increase for the 2010 tax year.
The potentially tricky part is figuring out whether you quality for an exclusion or exception. If you don’t get it right (or ignore it all together), you may pay more in taxes than you have to. But figuring out how much you must pay may be easier said than done.
In her 2009 report to Congress, the National Taxpayer Advocate Nina Olsen called upon Congress to “Simplify the ‘cancellation of debt’ minefield that many taxpayers who default on debts must navigate.”
[Resource: Consumer Guide to Debt Settlement]
Karla Dennis, Enrolled Agent and CEO of Cohesive Tax says her firm is “absolutely seeing an increase in (taxpayers with 1099-Cs). It’s almost every client who comes through the door. Taxpayers really are scared about it.”
“I would estimate 40 – 60% of the people (who receive a 1099-C or 1099-A) don’t owe this tax,” says William J. Purdy, III, an attorney with a Master’s degree in taxation who practices in the Law Office of Simmons & Purdy in California. But he also warns that many taxpayers won’t know what to do to avoid paying.
(In a future post, I’ll discuss Form, 1099-A – Acquisition or Abandonment of Real Property, which is often sent when taxpayers let their homes go into foreclosure.)
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First Things First
If you’ve received a 1099-C, don’t ignore it. “A copy of that 1099 has been mailed to the Internal Revenue Service,” warns Steven J. Elliott, CPA, MST, Tax Director for Schwartz and Company, LLC. ”The IRS is looking to have that income included in the tax return, unless there is an exception or exclusion.”
[Resource: Fourteen Questions to Ask a Settlement Company]
Elliott goes on to caution that “Even if you don’t get a Form 1099-C from a creditor, the creditor may very well have submitted one to the IRS. If you haven’t listed the income on your tax return and the creditor has provided the information to the IRS, you could get a tax bill or worse, an audit notice. This could end up costing you more in IRS interest and penalties in the long run.”
If you are accustomed to doing your own taxes, this is one situation where it can really pay to get expert advice from a tax professional* who has experience with this particular issue. Together with your tax advisor, you will be trying to determine whether you can avoid or reduce the amount of cancelled debt on which you have to pay taxes due to one of the following exceptions or exclusions:
Canceled Debt that Qualifies for Exclusion from Gross Income:
1. Cancellation of qualified principal residence indebtedness.
2. Debt canceled in a Title 11 bankruptcy case.
3. Debt canceled due to insolvency.
4. Cancellation of qualified farm indebtedness.
5. Cancellation of qualified real property business indebtedness.
How to Avoid Taxes on Canceled Debt (cont.) »
Image by David Reber’s Hammer Photography, via Flickr
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Gerri Detweiler Credit.com's Personal Finance Expert, Gerri focuses on financial legislation, budgeting, debt recovery and consumer savings information. She is also the co-author of Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights, and Reduce Stress: Real-Life Solutions for Solving Your Credit Crisis as well as host of TalkCreditRadio.comTalk Credit Radio. Reach Gerri at creditexperts@credit.com.
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I participated in a Debt Settlement program and on November 9, 2007 a Credit card debt was settled. It is now 2010 and I have received a 1099-C for $983.83 for cancellation of debt. Can the bank do this?
They can send a 1099-C for the canceled debt. However, the IRS says a creditor must issue a 1099-c the year the debt was forgiven. It seems that it should have been issued in 2007. If you qualify for the insolvency exclusion now it might make sense to go ahead and just fill out Form 982 and be done with it. However, if you don’t, but you qualified in 2007, then you need to get them to issue a corrected 1099-C. You may have to get help from a tax professional on this.
Hi there,
My husband and I went through bankruptcy in 2010. We recently got a 1099 form from a creditor stating that we needed to claim almost $5,000.00 as extra income on our 2011 taxes.
We do our own taxes and want to make sure we do the right thing. We live in California.
If we do claim this our refund is going to be $800.00 less.
Do we have to claim this if bankruptcy was filed in 2010 on this debt? And if not, then what do we do to make sure we are covered with the IRS?
Thanks for any help!
Shrina
Shrina,
You can fill out Form 982 and indicate that you discharged that debt in bankruptcy. Debts discharged in bankruptcy are excluded from taxable income.
You may want to read the other article I wrote about 1099-C forms and bankruptcy here.
Patricia,
As I explain in the article, if a creditor forgives more than $600 in debt, they are generally required to file a 1099-C. (There are exceptions, like bankruptcy, where no 1099-C is required.) The instructions for filing 1099-Cs (the instructions creditors would follow) state: “Generally, file Form 1099-C for the year in which an identifiable event occurs.”
However, keep in mind that for purposes of determining whether you are eligible for an exclusion so that you don’t have to pay taxes on that debt, you are trying to determine whether you were insolvent at the time you settled, not at the time they sent the 1099.
I understand that the more time that passes, the more difficult it is get the information together to calculate whether you were insolvent when the debt was settled. That’s why I try to warn taxpayers that they need to figure this out when they settle, not when they get a 1099-C. I know it’s easier said than done!
I am not a tax professional, so please don’t rely on this as tax advice. I recommend you talk with a tax professional. If you settled other debts, make sure you discuss that with them as well.
can you deduct the fees paid to a company who settled the credit card debts for you?
Marie, I checked with our tax experts and they concurred on the answer:
“For personal credit card debt or personal assets of any kind, any fee paid in conjunction would not be income tax deductible.
Business expense YES if there was a valid business, including someone self employed (Schedule C); rental activity (Schedule E) as well as a Corporation or Partnership deduction if business was established in that format.”
Steven J. Elliott, CPA, MST
Tax Director
http://www.schwartz-cpas.com
“The debt settlement fees for personal consumer debt are not tax deductible. If the fees were associated with business debt which is tied to the pursuit of income, then yes these fees are deductible.”
Karla Dennis
http://www.cohesivetax.com
I entered into a settlement agreement in a dissolution action. My ex assumed all liabilities arising out of a joint airplane lane. The airplane was repossessed because the ex didn’t pay. The bank cancelled $30,000 in debt and filed 1099-C forms for both of us. The settlement agreement between me and my ex is clear: I am not liable for this. But Form 982 does not have any provisions that remotely resemble this factual scenario, which must be common. What do you think, oh wise one?
Dear Sherry – I agree with Gerri that you should seek out a CPA close by your home or work location to help you with this issue.
I recommend at least that you disclose the 1099-C with all pertinent information written out and disclosed.
This would help you now AND down the road with any possible questions by IRS and your home state.
Best, Steve
Sherry,
You’ll need to get help from a tax professional with expertise in this form. Sorry I can’t help further!
Gerri
I have received three 1099-C’s from a debt collector (Asset Acceptance). I do not recall getting any mail from this company and they are not on my credit reports. I have read a lot of conflicting advice about whether or not this is even a legitimate 1099-C since they are a junk debt buyer. If it is legitimate, would it be for the entire amount of the original debt or only what Asset Acceptance paid for it? Also, my income is so low that I do not have to file a tax return, so I am hoping that it will not be for the amount they have claimed.
Charlotte,
You raise excellent questions but I don’t have any easy answers for you. First of all, the 1099-C is based on the amount of debt forgiven, not the amount the debt buyer paid for it.
Secondly, the IRS has received copies of these 1099-Cs and expects you to include them in your taxable income.
So that means you must address these, either by demonstrating to the IRS that you are insolvent or qualify for another exception or exclusion, or by getting the collection agency to issue a corrected 1099-C if the amount is not correct. That’s a lot easier said than done, as you can imagine, and it may require the assistance of an attorney with expertise in tax matters.
I have already filed and owe the IRS which I plan to pay on the 8th of April. I recevied a 1099A on a Townhown ( not a personal residence) . I included this with my taxes. The fair market value was less than the amount owed. Just yesterday I recevied a corrected 1009C from the bank . What do I do ? Will I owe more taxs? Do I file an amened 2010 return . I am lost, I filed myself with H&R block .
Dawn,
I agree with Gerri – seek out a tax professional and file an amended return which covers the Corrected 1099-C. Seek out the help of the State society of CPA’s where you live to help find someone close by.
H & R Block is fine for simpler returns, but not for something like this.
Good luck with your situation.
Best, Steve
selliott@schwartz-cpas.com
Take you information to your closet H & R Block office. They are quite capable of doing an amended return involving your situation. I have done several 1099A and 1099C’s myself. You will need to do an insolvency worksheet. When did the lender actually cancel the debt?
Dawn,
If you aren’t sure how to do this, I would really encourage you to find a tax professional with experience in these forms. (Not just a tax preparer.) The IRS has received the same forms you received and you have to figure out how to address them.
I am planning on doing a follow up story about problems with these forms. It can get pretty ugly – and expensive – quickly.
What is the impact to taxes owed if the FMV is greater than the amount owed?
Thank You . I don’t know why the bank just didn’t sent the correct form to begin with . I will talk with a tax professional . I will be on the look out for your follow up story . We had purchased this townhome for our kids to live in while in college . It has been a nightmare, with lost of income, then having to have it go to foreclousre, now this .
But thank you for your help .
Dawn
HI DAWN,
You actually may not be in a bad position. The banks will issue both a 1099C and a 1099A if the property was foreclosed upon. the 1099C may be reportable but possibly not taxable depending on your unique situation. IRS will always assume it is taxable. See out a great tax professional to help you. Make sure they have expertise in this area of the tax law. Not knowing how to process these forms, can literally costs you hundreds if not thousands of dollars.
Best,
Karla Dennis
Currently, our LLC has no assets and is not in operation but owes the SBA $400K. My wife and I did an offer and compromise and no longer personally guarentee the loan. We are insolvent right now, and would like the SBA is issue the 1099c sooner rather than later. Should our LLC declare bankruptcy just to force the SBA to issue the 1099c while we are insolvent?
David,
Insolvency is supposed to be calculated as of the time the debt was settled, not when the 1099-C is issued. I would recommend you talk with a tax advisor with experience in cancelled debts now. He or she may recommend you calculate your insolvency as of the time the debt was settled so that when the creditor does issue a 1099-C you’ll have that ready. I don’t know of any way to “force” a lender to issue a 1099-C but perhaps the tax advisor will have some advice for you.
I am with a third party collection agency who bought my credit card -I am down to owing them $546- can I not pay them anymore-and I won’t be rceiving the 1099-C form?
Mary – I am sorry I don’t understand your question. Can you elaborate?
Mary at this point you can ask them to settle… they may ask you to pay maybe around $200 or $300 but you definitely cannot receive a 1099c form on this debt because whatever deal they strike with you the SAVINGS could not possibly be more that $600. 1099c forms are ONLY for $600 plus in savings on a debt when you negotiate a settlement.
Good point Vee – creditors are only required to send 1099-Cs when the amount of cancelled debt is $600 or less.
I am in the process of a short sale, an offer was accepted..however, it is for a substantial amount less than what is owed on the house because we took cashout.
the house was inherited, so there was cash/equity taken out over the years and now the house is under water. the loan was modified by the lender when we couldn’t make payment, however making those payments have been in possible due to a paralyzing auto accident whereby our income now will not cover our expenses.
since cash was taken out, the outstanding balance is 520,000 and the offer price is $280,000. is the difference taxable? the lender is offering us $20,000 to move out and stated in a letter to us we will not owe anything more on the loan. Does that qualify for a exclusion because it’s a cancellation of debt?
we’re now worrying that we are going to receive a 1099-c from the lender for that cash out since it wasn’t a acquistion loan. Is this true? we are now thinking we better file for bankruptcy before the house sells so we don’t have to pay taxes. thanks for any input of guidance
Leann,
Given the amount of money involved (the difference of $240K plus the $20,000), it would be wise for you to talk with a CPA with experience in this issue asap. You may have to include that amount in your income if you don’t qualify for an exception or exclusion.
If it does turn out that you could have to pay taxes on forgiven debt, then foreclosure and bankruptcy might be the appropriate route to go. (Debts discharged in bankruptcy are not taxable.) Timing is absolutely critical, so make an appointment to talk with both a CPA and bankruptcy attorney before you proceed.
I am counseling a friend who will be receiving a 1099c for a credit card settlement his ex-wife apparently created at the time of their divorce. Four years later he is just learning about this from a collection agency. The divorce cleaned him out then and into the future and he is living with a relative, without real estate or other assets. He is cleaning out his pension to settle. It seems that he qualifies for the label: insolvent. How can he be sure that he has this done properly before he files his taxes? The debt was $4,000 at the time the ex-wife used a credit card that he believed was closed. In the four years since, it rose to $11,000. The settlement is about half the original debt she created.
It’s great that you are trying to help your friend, but please urge him to see a bankruptcy attorney before he cleans out his pension to pay this debt. The debt may be outside the statute of limitations, and his pension funds are likely safe from creditors. He may not even have to file bankruptcy to get rid of it – he may be what’s called judgement proof.
In addition, timing is crucial with regard to the 1099-C issue so I would urge him to talk with the attorney before he settles.
Finally, that settlement amount seems high to me given what you are describing.
Please help your friend get legal advice before he makes any decisions here.
We live in Georgia and last year in 2010, we rented out our primary home because we were unable to sell in due to being underwater and we had to move closer to my husbands job. We purchased a new home closer to his job. We also have another investment property that we purchased in 2005 that we intended to flip as soon as we fixed it up, but then the real estate market took a dive and we were not able to sell and stuck with another underwater property which we had to rent as well. We have tenants in both rentals and every time the leases come up for renewal, we have to spend thousands in repairs and have also had tenants not pay their rent and has caused us stress to keep these rentals afloat for the sake of saving our credit. For the past 25 years, we have never defaulted on anything and always pay our bills. Now we are forced to foreclose on the two rental properties because they are costing us too much to maintain and are dead investments because we owe more than they are worth and the areas are declining according to market analysis from our realtor. The market continues to decline in both areas and renters are not consistent in making their rent, forcing us to get them out of the house and get new renters which costs us a lot of money to fix up the rentals each time. The houses cause us stress and is draining us financially.
With our primary home we are doing fine and we are doing fine with our other debts. Its just the rental properties that don’t make sense to keep anymore. We hesitated to let them go because we have such good credit and didn’t want to lose our good credit standing. Now for the first time in our lives, we are forced to let the houses go.
For both houses, we have a first and second mortgage. If we foreclose on both rentals at the same time, what is the potential impact for us as far as it affecting our primary home and potential taxes we may have to pay if issued a 1099? Can the 1st and 2nd mortgages come after our equity in our primary or savings account? Can they take our cars or retirement? What else should be expect should we foreclose? This is new territory for us. Thanks.
Renee,
I understand this must have been a very difficult decision for you and very stressful as well. Given the amount of money involved, I would really encourage you to meet with a tax professional who has experience in dealing with these kinds of situations, as well as a bankruptcy attorney who can help you understand whether you might be at risk of owing a deficiency, and if you will, what other property you own may be at risk. The attorney will be able to tell you what is safe from creditors and what may not be.
After talking with these professionals, you may decide to try to pursue short sales on the properties, or you may decide it’s better to file Chapter 13. That’s something the attorney can help you figure out. (You should also meet with a tax professional before you make any decisions either way, to determine whether you may owe taxes on “forgiven” debt.)
Often these kinds of decisions involve making some tough choices. In other words, there may not be one option that is clearly superior to the rest. But I would encourage you to try to make your focus on the financial decisions involved and less on the credit decisions since all of the options you may be considering – foreclosure, bankruptcy, and possibly a short sale – will affect your credit.
Hang in there.
Hello,
We are attempting to settle our second mortgage for 10% of the original loan amount. We have successfully modified our first mortgage, so we will be keeping the house. We are also in the process of filing chapter 7 banktruptcy. Will we have to pay taxes on the settled amount of the second loan?
Eva,
It’s essential that you talk with a tax professional about this asap. Timing could be everything here. See a CPA or Enrolled Agent who has a lot of experience with this issue.
I had a surgical procedure performed for which I thought I was covered through Medicaid. The procedure’s anesthesia provider began dunning me after trying to bill Medicaid and being denied (due to the mistake of the state’s public welfare department). I attempted to resolve the problem and get the state to pay, but could not. I ended up settling with the provider, paying 75% of an $885 bill, and hoping that would be the end of it.
When other providers (i.e. the surgeon) started billing for thousands of dollars, I realized this problem wasn’t going away. I retained a lawyer who was able to get the state to admit its mistake and cover the procedure — because the procedure is covered, any debts associated with it are invalid. The surgeon was able to bill Medicaid in full, but the anesthesiologist has been intransigent and thus far has refused to respond to the Public Welfare Department’s request for him (the anesthesiologist) to rebill Medicaid.
I know the anesthesiologist or the Public Welfare Department (one or the other) owes me the money back that I paid in settlement of the debt. My lawyer’s helping take care of that.
My question is this though: given that the debt to the anesthesiologist was invalidated, what do I do if and when he submits a 1099-C? Given that only about $200 was forgiven, will a 1099-C even be submitted? If so, what do I tell the IRS? It’s simply inconceivable I should be made to pay taxes on a partially-cancelled debt that I never should have had to pay in the first place. Ideas?
Jim,
I am not a CPA or accountant, so I don’t know exactly how you would deal with that if it came up. But quite honestly, I wouldn’t worry about it. 1099-Cs are only required when a forgiven debt totals $600 or more, so I doubt they will even send it. If they do, then you’ll have to either include it in your taxable income, or get some professional advice on other options.
What a mess! Have you checked whether this is listed on your credit reports?
Gerri,
Hi, thanks for all your support on this site. I have an uncle that passed in August and I am trying to clean up a trail of credit card debt. Long story short I will be $33,000 short on paying off his debt, and I know the credit card companies will be sending the 1099-C in this amount. I estimate the Fed tax will be around $6500 for the additional 1099-C liability. If I hold back this amount ($6500) for tax the the short increases to $39,500. If I do not settle the debt and file Fed Tax in 2011 for my uncle. Then the remaining funds would be used to pay the credit card debt, they will still file a 1099-C in 201, but would I be obligated to file a 2012 tax return for my uncle who passed in 2011 ? Is this a strategy the could work ????
Terry – So sorry to hear about your uncle’s passing. Question: why are you responsible for paying off his debt? Are you personally liable?
Are auto loan companies required to file a 1099c if they say its charged off on your credit report? If you receive a 1099c and you have to pay taxes or are exempt,does that clear up the debt or do you still owe the debt? I ask because my home was foreclosed on and my car was repoed, and the creditors say it was charged off and another collection agency has the debt.
Margy – Sometimes you’ll get a 1099-C right away. In other cases, they send the account to collections and don’t consider it forgiven debt until the collection agency has tried to collect. Sometimes you don’t get a 1099-C unless you negotiate a settlement. It all depends on the creditor and its policies.
If you do get a 1099-c then re-read my article for information on your options. You may be able to avoid paying taxes on that canceled debt if you qualify for an exception or exclusion. If you receive a 1099-c and/or 1099-A, I recommend you consult with a tax professional (CPA or enrolled agent) as soon as possible.
I recently paid off my two plus year old credit card debt at a slightly lower than amount owed which included in some cases years of added interest and fees. For example,I owed approximately $7,500. at time of default.At time of settlement $10,550. I negotiated a settlement and paid $7,000. Is the total sum of $3,500 considered income(1099c) or just the $500. of the principle balance not paid? The $3,000 was all fees,extremely high interest and penalties accrued after default. For the record this was with H.S.B.C. beneficial finance.My other creditors had stopped attaching these fees after about 6 months in default. I feel it would not be right for me to pay tax on this imaginary money.Please assist me as best as possible with my liability.
thank you for consideration,Mark
Mark,
I have been told by tax professionals that 1099-C’s generally can include fees and interest that was “forgiven.” If you have a legitimate dispute over the fees or interest that was charged you may be able to dispute it but it’s not an easy task.
Do you qualify for an exclusion or exception?
The (Bank) foreclosed on my house last year and my attorney worked out a waiver of deficiency for my consent to foreclose.
The servicer added a boatload of charges at the end and the (bank)bought the property back at the foreclosure sale for about 1/3 of what i owed.
The differance would be a whopping $200,000. I’m covered because It was my primary residence 2 out of the 5 years. The problem is the (bank) or servicer hasn’t sent me a 1099.
How long should i wait and what should i do if they don’t send it?
Is it possible they won’t send one? I
Jack – It is possible they won’t send one, or it’s possible they will send one in a couple of years. Given the amount of money involved, I’d suggest you talk with a tax advisor (CPA or enrolled agent) experienced in this issue now. If you wait, it could be harder to recreate the documentation you may need to show you qualify for an exemption.
I received a 1099-C from a bank credit card, it states the debt cancelled was in the amount of 10342.02. My father loaned me the money to pay off the settlement PFS got for me to clear out my debt. I have no assets and still owe on my car, the only money I had at that time was that given to pay it off the debt. Would this qualify me as insolvent? Will i be able to file taxes as usual on turbo tax or will it require additional help?
Amber,
Find out if Turbo Tax supports Form 982. (I’ve read online that most versions do, but haven’t confirmed that.) If it does then, theoretically at least, you could do this yourself. You can go to the IRS website now and look at Form 982 to see if you understand how to fill it out.
If you aren’t sure you can do it yourself, then talk to a tax professional now. They will be very busy soon!
Gerri
I have just received a 1099-C for a deed in lieu on my primary residence that I owned in Florida in the amount of $49,238.70. I willingly did the deed in lieu versus the foreclosure as I wished to minimize the negative impact to my credit. My question is, does my deed in lieu qualify under the Save Our Homes program? I had been trying to sell the home (on market for six months) and had been six months in arrears when the deed in lieu went through. My home was $100K underwater, but since I had gone in with a large downpayment the difference was the amount above. I have since relocated to California where I am slowing putting my life back together, but can’t even afford to pay tax on the $49K at this point in my life. Your advice is greatly appreciated.
Cheryl,
I don’t know what you mean by qualifying for the Save Our Homes program. My understanding is that is the name for some state foreclosure prevention programs.
Are you asking whether you can avoid paying taxes on the forgiven debt of almost $50,000? If that’s the case, then you need to either go through Form 982 to find out if you qualify for an exception or exclusion, or hire a tax professional to help you through that form. Since there is quite a bit of money involved, I’d recommend you get help if you can’t fill out the form yourself.
What I am looking at is the Mortgage Forgiveness Debt Relief Act and Debt Cancellation. Sorry, just realized that it is different than the Save Our Homes that I mentioned. I have a call into a tax attorney, but everything I read indicates I should be covered for a deed in lieu of foreclosure on my principal residence.
As a follow up. I spoke with a tax attorney, and my $49K 1099-C is covered under the Mortgage Forgiveness Debt Relief Act and Debt Cancellation as it was my principal residence. Thank goodness I never rented the house as it would have voided the coverage and I would have been on the hook for taxes on the $49K. He provided me with the info and the forms that need to be completed to zero it out on my taxes.
Hi Cheryl,
I am in your exact same situation
Can you tell me what forms your tax attorney said to complete. I know form 982 needs to be completed but are there any other specific forms for that issue and did he give you any tips on what NOT to do? Any help you could provide would be most helpful. I live in North Dakota in the middle of nowhere and there are no CPAs.
Excellent! Thanks for sharing that Cheryl.
I too did a deed in lieu…Knowing what forms to file would be a great help. Thanks.
We live in Texas (in case state laws apply) – My husband had a car repo in 2002 from Toyota. Last year (7 to 8 years later) we got a 1099 from Toyota saying they settled out dept for 3498.00. It was a weird looking letter and statement so I thought it was a sales gimick and disregarded it. Now I have a letter from the IRS saying we own $480.00 from this dept cancellation. Can this be done? We have had no contact with Toyota in the last 5 years I have lived with my husband and never agreeded to any settlement. Just seems odd that a company can make up a number 8 years later and write it off leaving us with a dept to the IRS. Any suggestions?
Laura,
I am sorry I don’t have a simple answer to your question. Your situation is not completely unusual – sometimes these 1099′s pop up years later. If you want to avoid the tax on that cancelled debt you’ll need to try to wade through Form 982 or get help from a tax advisor to do so. It might be worth at least talking to a tax advisor about it – it’s an awfully old debt and perhaps some kind of statute of limitations applies.
Thank you Gerri – I asked the IRS about a statute and they just said this is a federal issue because a 1099 was issued. If I look up Texas Statutes it states that depts older than 4 years can not be collected on. Also – If it was settled 8 years later then there would need to be documentation for any dollars Toyota received when they sold the car. I have a call into Toyota asking for their documentation…
I live in California. My loan servicer agreed to do a deed in lieu while the 2nd charged off the amount owing them. This property was my primary residence and underwater by $200,000. While I have to pay taxes on the 2nd? I do qualify under the Mortgage Loan Forgiveness Act of 2007. I have not received a 1099-C from either. Can I file my 2012 taxes without the 1009-C?
I am not a tax professional, but my understanding is that the 1099 is what triggers the need to file Form 982 to demonstrate that you qualify for an exclusion or exception. It’s possible the lender is still hoping to collect on the debt if possible.
I’m glad I found this article! I received a 1099c today for an old credit card debt which dates back to 2001. This date is way past my states statue of limitation which until last year (4/11) was 3 years but was changed to 6 years.The debt is uncollectable and unreportable so how can they forgive something they have no right to collect?The debt only exist if I choose to pay it. How would I go about handling this with the IRS?We don’t have any funds to pay for an attorney since my husband is on disability and I run a small home based business that helps supplement his disability and we are just making ends meet, barely. This same company also sent my mother a 1099c but she passed away in 4/09 and her estate was insolvent. I’m sure the amount they forgave on hers is not enough to even have to file a 1040. Do I still have to file one for her?Thanks!
Hi Gerri,
I just received a 1099-C for a relatively small amount, from Capitol One. My credit has been excellent for years, so I called them to find out where this came from. It turns out it was from a credit card I had in 1986, and which was charged off in 1989. But the official debt forgiveness date is 12/31/2011. I haven’t had contact with Capitol One, of any kind, in decades.
My question is: isn’t there a statute of limitations on these “forgiveness” shenanigans? I suspect that the bank has found another way to profit somehow by reporting this ancient amount, after all this time. I can’t afford to have this “income” added to my AGI this particular tax year, for several reasons.
Is there a process to dispute this with the IRS?
jim, i am in the exact same type of situation with capital one. it seems from reading here and online capital one acquired chevy chase bank and paid over 500 million for it. it looks like they are trying to write off cancelled debt chase has had sitting around for decades. i never got a 1099 a or c from cap one but did get a letter from irs and sure enough cap one says 10,000 $ cancelled on 12/31/2011 so i talked to cap one and they said its valid and from chevy chase bank in 2000. the forms they are sending probably millions of people and the irs are complete lies. i told cap one ur talking about something in 2000 this is 2012 she said they bought chase in 2008 which i replied who cares this is 2012 and she said to talk to cap one collections. they are trying to reopen these old accounts in an attempt to collect on them and be able to re report. they are lieing to the irs of all things and the irs doesnt care because they can collect extra tax this is an outrage at least.
Gerri, Thanks for getting back to me. I’m in Arizona and the CC on both mine and my mother’s is Capital One. I see that another one here has the same experience with them. My cancellation of debt date is the same as Jim’s, 12/31/11 but my mother’s is 1/31/11. They both arrived he same day.. I don’t know if Jim has had what I have. After not hearing from Capital one for years, last year they started sending me statements with new interest added each month. I laughed at it cause I figured it was a feable attempt at re-ageing the account. I kept the statements in case I needed them and watched my credit report to make sure they didn’t try to report it.I didn’t receive any statements like that on my mom’s account. Nancy
Wow! Me too. My Capital One debt was discharged in Chapter 7 in 1996. I got a call about 6 months ago and gave them my discharge information and didn’t hear back. Now they send a 1099-C for December 31 2011.
I hope they can get fined for willfully ignoring the law. Has anyone spoken to the IRS?
Clara
I am looking for the response to Nancy A and Jim Miller’s questions. Very similar situation, except with Discover. I settled with them in 2008 and just today received a 1099-C with cancellation of debt date of 12/31/2011. If I hadn’t settled with them, the debt would have been past the statute of limitations in July of 2011. Advice, Please!
Michelle – I am still looking into this issue, but generally what I’ve been told is that the statute of limitations is a separate issue from the issuance of a 1099-C. The IRS guidance to creditors says they must issue a 1099-C in the year the debt is forgiven. But there is no specific guidance in terms of when that must happen. If the statute of limitations has expired, it seems to make sense that would trigger a 1099-C, but on the other hand, a collection agency may still try to collect (as happened in your case). My best advice is to find out whether you qualify for an exception or exclusion, and get help from a tax professional if necessary.
I would like to know the exact same thing. Can a debt from 1995 be cancelled and taxed in 2010 without any notice or contact from Capital One…not to mention no account with them?
Gerri,
I am in a similar situation. We had a settlement company working on negotiating our debt. Two cards from Chase ended up going to arbitration and one ended up settling for less than owed (but with $2000 added for legal fees) so we still ended up paying quite a bit of what we originally owed. On the settled account, we never received a 1099c and I didn’t know we had to file even if we didn’t get one. This settlement was from 2008 and now we received a 1099c saying that the cancellation of debt was from december 2011. We have a letter stating that the settlement was back in 2008. What should we do with this? Should we file or do they need to send a revised for 2008? The other account was for a large sum that Chase wrote off as bad debt and sent a 1099c for the entire amount. Can they still collect on this down the road even though they sent a 1099 stating that it was cancelled? Hopefully you can help soo, I do have letters and faxes in to Chase as this is very time sensitive now with taxes due in one month. Thank you!
Carrie – If you read the instructions for Form 982 (which you will find in IRS publication 4681) you will see that you are supposed to calculate your insolvency at the time the debt was settled. It sounds like you know when it was settled so now the challenge will be trying to recreate your finances at that time so you can figure out if you qualify for the exclusion.
As for whether Chase can try to collect a debt for which you received a 1099-C, the answer is maybe. The 1099-C is a tax form required by the IRS in certain cases, but my understanding is that it doesn’t alleviate you from still owing a debt that is legally collectible. However, I have spoken with at least one attorney who said the1099-c means the debt has been cancelled. I’m going to have to suggest you talk with an attorney to clarify that matter.
Hello,
I included my automobile with my bankruptcy in 2010, it was a Chapter 7. However I received a 1099 for the car that I included in the bankruptcy. What do I do now? Must I pay the taxes on this large amount even though it was included in my bankruptcy?
Please help.
P.S I live in California
Thank you.
Johnny
Johnny,
You do not have to pay taxes on debts discharged in bankruptcy. File Form 982 with your return and let the IRS know it was included in your bankruptcy.
Gerri
Geri, it is my understanding that it is only for Chapter 11, you still have to pay taxes for debts relieved on Chapter 7, though I’m not 100% sure. Does anyone know?
Great question Sandra – the IRS sure makes it confusing, don’t they? Title 11 refers to the chapter of US Commercial Code under which the bankruptcy laws appear. However, debts discharged in any type of bankruptcy – Chapter 13 or 7 being the most common – are covered. So if you discharged a debt in a Chapter 7 bankruptcy you don’t have to pay taxes on the debt that was wiped out.
I live in Missouri and had a property foreclosed on 3 months ago….on my first, I owe 330,000 but the pmi co. is paying the debt down to 250,000…the lender currently has the propery for sale and I would assume if they net 250,000 I would get no 1099C since the lender took no loss…can the PMI company issue a 1099C for their payout?..or does it have to be from the lender?…I did receive the 1099a which my understanding is to be treated on my tax returns like I took a loss on the sale of my house..in addition, I had a HELO on the propery of 60,000 to start a business..the second lender continued to send me statements even though I haven’t paid them a payment for 10 months and just recently, I received my 1098 from the second lien holder and it says “Paid off loan mortgage interest statement” and on the back it says principal balance owed $0.00…does this mean they have already written off the debt and going to send me a 1099C for this?..or a mistake?…befuddles me because I can’t think of any instance this loan could have been paid off by 1st lien holder and / or pmi since pmi was for my first only..any thoughts on my situation?
…Just wanted to mention in the scenario I desribed above, the property was my primary residence.
Mike – as much as I’d like to be able to help, you have a complicated situation and really need to get the advice of a tax professional.
I was released from liability of a BOA line of credit in 2008, because I had disputed the amount owed, and felt I had overpaid ($1800 LOC that cost over $12k in the end). Received a letter from BOA releasing me from all liability, and that all would be removed from my credit report – this was never a “debt settlement” nor was I told that I would be liable for any amount whatsoever. Just received a 1099-C in the mail for over $5800. Filed a complaint with FTC – now BOA tells me they are amending 1099-C to $1800??!! Now what?
Jann,
Do I understand you correctly that you did get a line of credit for $1800 but did not pay it back? I can understand that the interest and penalties are disputed, but if you took out an $1800 loan and then did not repay it, that counts as income according to the guidelines. (I know it stinks, but conversely, if you think about it – if forgiven debt didn’t count as income it could easily be exploited as a loophole to avoid paying taxes.)
The lender is required to report forgiven debts totaling $600 or more to the IRS on Form 1099-C. Have you looked at whether you quality for an exclusion or exception as I described in my article?
I received a 1099C today for a debt of my deceased spouse. My name was not on credit card and he never lived at this address. What do I need to do?
Did you file a final tax return for your spouse? I am not a tax professional, but my guess is you may need to amend it.
Was the 1099-c in your name or just in your spouse’s name? If it is just in your spouse’s name, then I would ignore it. If it was in your name, then I’d contact the creditor and insist they correct it.
Hi,
After going through a divorce in 2007 and trying to sell our home in this housing mess,
I was unable to reach an agreement of payment on my debts that was in the realm of my financial reality at the time so I closed all accounts and stopped payment on credit accounts immediately.
(when I received the 1099 c ‘s in the mail last year I thought they were some kind of elaborate debt collection scheme cooked up by the debt collectors as I’d never heard of forgiven debt and so I foolishly ignored them)
I am working on the publication form 4681 insolvency sheet and on line one of liabilities it states “credit card debt” . My forgiven debt has a forgiven date of 12/15/2010 -
My credit card accounts were closed long before said date but the debt plus interest was still there – still is. My question is: Do I enter the amount of the debt from the credit card accounts even though they are no longer active or is that form requiring only credit card account balances that are still open and being used?
(I am not seeking advise from a tax person in these parts as the last two I had used turbo tax and charged me hundreds of dollars to do and there were errors in each one. So now I do my own).
Thanks for any answers you may be able to offer regarding my question.
just a P.S. to my above post:
There are no credit cards that are open and being used – I just want to know if the credit card debt they are looking for on that line of the form is open/closed or both and also with or without interest included in the balance…
Once again, thanks in advance.
Christi,
I am not a tax professional so you can’t rely on my information as advice. But remember you are trying to demonstrate whether you are insolvent, and so the IRS is asking you to list all your liabilities and assets. Even though an account is closed, you still owe it so my view is that it should be a legitimate liability.
That is my way of thinking as well and until the debt is forgiven and even when it is not, it is still classified as a debt so thanks for the input/opinion, I appreciate your time.
I also received a 1099-c that I am certain includes interest and penalties. My original credit limit on the card was something like $500 and the 1099-c is for more than $1700. I most definitely did NOT charge that much on the card. Why would they even let me? I never paid the debt due to their shady finance charge practices in the first place. I would like to know if it’s true they can’t claim interest charges.
HELP PLEASE! I received a 1099-c from capital one (dated 12/31/2011 for over $3200. Never had an credit card with capital one. I filed bankruptcy in 1991 – yes 1991 – 20 years ago. I did some research on the internet and found that the account they are sending the 1099-c on was for Signet Bank (which was (included in my bankruptcy (20 years ago) Capital One bought Signet Bank around 1995. Capital one claims they have no record of my bankruptcy in 1991 – course not – it’s with the Signet Bank records from their acquisition of Signet Bank (I provided this information to the person at Capital One, and she said she had no knowledge of that event and wasn’t sure those records would be available anyway. duh. Then how did Capital One find me and issue this 1099-c in the first place? My concern is that this 1099-c was dated 12/31/2011, potentially makes it a CURRENT DEBT NOTICE – does this get reported to the credit bureau? How do I convince the IRS I should not have received this 1099-c? I can’t find my bankruptcy papers, but interestingly Capital One provided me with a number that I think “might” be my bankruptcy record number as it begins with 91-xxxxx.”, which is the year I filed bankruptcy. I didn’t have this number anywhere in my personal records because I cannot find my bankruptcy papers, but they had that number on my file, yet they claim no record of my bankruptcy so sent the 1099-c to me with bankruptcy unchecked. THIS DEBT OCCURRED AND WAS DISCHARGED CHAPTER 7 20 YEARS AGO!! Who keeps records for 20 years? Not even the court has them available – they’re stored somewhere – not even accessible at this point! How do I resolve this issue and get Capital one to issue a 1099-A? and forget about me? I’m nearly 70 year old cancer survivor and don’t need this aggravation at this point in my life because the PACR record system doesn’t go that far back! I’m so aggravated by this. I’d like to sue Capital One for mental and emotional anguish if I could – but right now I just want to resolve this problem – Any suggestions? I can’t really afford an attorney and tax time is coming up soon – Help please!
C
Sandie,
I am looking into why Capital One is sending out these very old 1099-cs now. But don’t panic about your situation. Have you looked at Form 982 yet? If not, go the IRS website now to get the form. You’ll see in the first part where you can check box 1 a. Discharge of indebtedness in a title 11 case (title 11 refers to the Bankruptcy Code and applies to whichever type of bankruptcy you filed). Then put the amount (for that debt and any others that send you a 1099c) discharged in your bankruptcy on line 2. That amount will be excluded from your income.
I don’t see anything in the instructions that requires you to provide proof from your bankruptcy filing. I am not a tax professional, however, so it would be a good idea for you to talk to the IRS or a tax professional to find out if you need to include proof with your return.
This old debt should not be on your credit reports. You can check them at annualcreditreport.com.
My husband and I did not have any income for the entire year of 2011. We didn’t get any federal’s aid such as unemployment wage or food stamp. A few days ago, my husband received a form 1099-C from BOA stating that $18698 was forgiven and was reported to the IRS. Do I now have to start filing fax because of this form or can I just ignore it?
Jeannie – You don’t want to ignore it. The IRS has a copy and will count it as income. But that doesn’t mean you will owe taxes. You may qualify for an exclusion or exception if your liabilities (what you owe) are greater than your assets (what you own). I am not a tax advisor, though, so you’ll need to visit the IRS website and either contact them for more information, or work with a tax professional.
My mom is on Social Security Disability. She received a 1099C today for a cancellation of Debt of 10,593 on a auto loan. She has tried for several years to get this account placed over into my nephews name like the dealership promised they would to no avail. The vehicle was repoed about 4 years ago and we have sent them letters to contact the responsible party . How will this affect her Social Security Benefits? Is she required to pay taxes on this amout
Gerri – my wife has received a dischrage of her student loan due to total disability because of a brain tumor. Now we have just received a 1099C for this debt. Will this be considered income. I don’t see it anywhere as an exception, but I cannot believe that it wouldn’t be.
Kyle,
So sorry to hear about your wife’s health problems. I answered a related question in a follow up article and hopefully it will be helpful to you:
http://www.credit.com/blog/2012/02/just-received-a-1099-c-dont-freak-out/
You may want to contact your elected officials in Washington about this. It seems there should be an exclusion or exception for cases where student loan debt is cancelled due to total disability.
Is there a statue of limitations on a cancellation of debt 1099?
Toyota financial services just sent us a
My student loans were discharged I am on social security do I have to file the 1099c I received for $62,000. My student loans were discharged due to total disability and I don’t file taxes because Social Security is non-taxable….HELP!!!!
Hi Kim,
I answered your question in this article:
http://www.credit.com/blog/2012/02/just-received-a-1099-c-dont-freak-out/
Just received a 1099 for a credit card debt that the original creditor had sold to a collection agency. The debt was paid to the collection agency and a satisfaction letter was recieved. How do I handle this on our taxes?
Christina,
I would urge you to contact the creditor and insist they correct the 1099-C since you paid the collection agency.
Gerri
I also received a 1099c from Capital One in my previously married name and my Ex’s name underneath for $885. When I called the #, they stated it was for a credit card opened in 1999 and charged off in 2000. The 1099c is dated 12/31/11. I do not know anything about this as we were separated at that time and divorced in 2004. Not sure what I need to do as I have not had any communication with them and out of the blue, a 1099c is sent to the IRS 11 years later. Any suggestions? How can they say debt forgiven when I know nothing about it?
Cynthia,
I am researching this issue and hope to have information for you in the near future.
Please HELP!! I also received a 1099c from Capital One in my previously married name and my Ex’s name underneath for $885. When I called the #, they stated it was for a credit card opened in 1999 and charged off in 2000. The 1099c is dated 12/31/11. I do not know anything about this as we were separated at that time and divorced in 2004. Not sure what I need to do as I have not had any communication with them and out of the blue, a 1099c is sent to the IRS 11 years later. Any suggestions? How can they say debt forgiven when I know nothing about it?
I have two loan. Trying to do a short sale and offer is pending with the first bank.I am trying to do a debt settlement with the 2nd. So my question is if the house get Foreclosed or short sale by the first do I need to pay taxes on the amount I saved through debt settlement. The property is in California and I refi the 2nd loan to get a better rate.Please advice.thanks
I’d recommend you talk with a tax professional. The answer to this question could be important in terms of your decision as to how to proceed. Alternatively you can read Form 982 and the instructions and try to figure out yourself whether you qualify for an exception or exclusion. As I explained it my articles, forgiven debt is generally considered taxable unless you qualify for an exception or exclusion.
I took out a Parent Plus loan for my child’s college tuition, so the U.S. Dept. of Education is the creditor. They cancelled this debt when I became disabled. Now I got a 1099-c from them. Is disability one exclusion where I wouldn’t have to report this cancelled loan amount as income?
I have not identified any exclusion or exception for student loans cancelled due to disability. However, as I explain in the following article, you may qualify for the insolvency exclusion:
http://www.credit.com/blog/2012/02/just-received-a-1099-c-dont-freak-out/
Just got a 1099-C today on online credit (bill me later). They had sent me a letter in the mail on March 21, 2011 offering to settle the amount for 25% of the balance or gave an amount to resolve the debt… I chose the amount and then got a letter from them stating the debt was settled in full… Beings it was settled in FULL, can this be excluded? What do I need to do? Thanks in advance!
Linda,
They agreed to settle the debt for less than you originally borrowed. The IRS considers forgiven debt income. The next step is to read my article and see if you think you qualify for one of the exclusions or exceptions. If you do, you’ll fill out Form 982 to demonstrate to the IRS why you do not have to include this amount in your taxable income. Hope that helps!
Hi I just got a 1099-c and not sure if Im qualified for insolvency. I owed over 15000 in separate creditcards. This one is for the amount of 1555. I dont think I have any assets. If I can have a better understanding on assets and if im qualified. Would make things simpler.
Do you have to include your income as part of your assets if you are attempting to show insolvency?
As in I make a decent yearly salary, however I owe 35,000 in student loans but I’m only worth about 15k, with car and bank account included.
Take a look at the insolvency worksheet on the IRS website -it’s pretty straightforward.
Hi Gerri,
I did a deed in lieu on my primary residense last year. I just got a 1099c from the mortgage company. The amount in box 2 (amount of cancelled debt) is $42900. The fair market amount in box 7 is $44100. I am assuming correctly that I am only responsible for taxes on the difference ($1200)? or none at all? I sure hope it is one of the above and not the entire amount or I will be heading for bankruptcy ;0(….Thanks>
I just received a 1099C for 2011 that is for debt that was canceled in December of 2010. I called the creditor to dispute it because it is issued for the wrong year. I was told by an agent that it is a “good thing” that I received the 1099C one year after the fact. She indicated that I could claim it as a Loss of Income and that I might not have to pay any taxes on it at all. It sounds too good to be true and I’m thoroughly confused by the information. How would I claim it as a Loss of Income?
Kelly – what kind of an “agent” were you talking with? I have no idea what she means by loss of income. Perhaps she was referring to the insolvency exclusion that I described in my article. At any rate, start with Form 982 on the IRS website.
Hi Gerri,
Two questions:
(1) I was married this past September. Prior to that date, my husband settled a credit card debt and we just received the 1099-C. He did not own a house and was unemployed at the time he settled the debt, so his liabilities would have certainly outweighed his assets. However, I do own a house and have significant investments. For the purpose of determining whether any of the discharged debt can be excluded from income, would it the basis for the calculation be his assets/liabilities at the time the debt was discharged, or our now combined assets/liabilities as a married couple? We will have a tax specialist complete our taxes this year, so just wondering what to expect.
(2) In performing the above calculation, do you include IRAs as assets – ? If yes, would you include at the value of the IRA minus any penalties for withdrawal, or at full value?
Thank you in advance!
Jennifer,
I am glad you are working with a tax professional. I am a credit expert, not a tax expert, so I can’t give you specific advice regarding the timing issue. (I will note that this seems to be a problem, though, with creditors sending out 1099-c’s years after debt was forgiven.) As for your second question, you can read the Insolvency Worksheet to get an idea of how this works. Hope it all works out OK!
I have filed my taxes and been accepted by the IRS. Then my husbands receives a 1099-c in the mail. We have filed married jointly. What do I do now???? Please help!!
Keely – Read Form 982 and instructions to see if you qualify for an exclusion or exception. I am assuming you did your taxes on your own? If so, then call the IRS and find out if you need to file an amended return.
If you don’t mind can I ask a second question? Ok the past 5 years the IRS has been offsetting our taxes due to default student loans. I have recently set up a settlement with the people holding the student loan. Now I have filed my taxes and it is saying I am getting back more then the agreed settlement, but my husbands name is still flagged for offset. My question is, will they keep all my taxes and make me pay the last two pmts on settlement, or will they just take remainder settlement and give me the remainder>? I have made 1/3 payments of the settlement already. thanks a billion for your time. Who knows what will happen now that I got 1099-c
Hi Gerri,
I (and my ex-husband) previously owned three rental properties. 2 out of 3 of them have foreclosed. I received a 1099-A on one that foreclosed in 2010 and had a huge tax bill as a result of the “unseen” income. I received another 1099-A on the one that foreclosed in 2011 so am bracing myself for another huge tax bill this year. My filing bankruptcy does not protect me from this? I asked this question of many people last year and no one could tell me I was not responsible for this. The bankruptcy attorney was the only that said they sent the 1099-A in error.
Thanks,
Alvena
Alvena –
You do not have to pay taxes on debts discharged in bankruptcy. If the debts in question were included – and discharged in – your bankruptcy, then you can file Form 982 and exclude that amount from your taxable income.
Hi Gerri,
I owned a timehsare completed a DIL to deed the timeshare back to the timeshare company. I received a 1099c for the Cancellation of Debt, however The FMV is more than the amount of debt canceled. do i report this as a sale ofthe porperty or do i have to pay taxes on the Debt canceled.
Thanks,
Albert
i received a1099c for forgiveness of my wife’s school loan due to her disabiltiy will i have to include this in taxable income
I receive 1099c they say we didnt pay our car loan but its been paid off in full and i proof to show i just dont know to to tell them and how to resolve it what should i do..
Hi:
I did a short sale on my house last year and about $52K was the amount of the debt forgiveness. I also received $3000 for the HAFA/RASS relocation assistance program. But I have not received a 1099C for this $3K and am not quite sure who to ask for it. Is this an amount that will be fully taxed?
My question is if the PMI company protected The bank from part or all of the
deficiency shouldn’t the amount on my 1099-C be the deficiency less the amount
this insurance covered? How is it fair that the bank can claim it as a loss if they were paid back?
Can a 1099c be issued now for a debt that was forgiven in 2001?
Kevin,
According to my research, you probably should have gotten a 1099-C long ago for this debt. I’d suggest you read my article about 1099-Cs for old debts.
I received a 1099C for a CC debt. That CC debt is also showing as a judgement at the court house. when it (1099) states cancellation of debt, does that mean cancellation of same monies on the judgment?, or can they forgive debt, and still collect on same monies for judgement?
if it is cancellation of judgement debt (which is the same as debt) how do I notify court house of 1099 or is the CC company suppose to do that?
thanks
Judy,
The IRS specifically says that a 1099-C does not mean that there will be no more collection activity on a debt. So no, the issuance of a 1099-C doesn’t cancel out the judgment.
Have you looked at IRS Form 982 and Publication 4681 to determine if you are able to qualify for the insolvency exclusion? That may be the easiest way for you to deal with this.
I received 2 1099-C Cancellation of Debt’s for the same account, original creditor & the same exact amounts but from 2 different collection agencies. One is on my credit report reporting a credit limit but not the amount on the 1099-C. The other collection agency is not on any of my credit reports.
Can I really get 2 1099-C’s from 2 different agencies for the same debt or is one illegal and the other is valid? Who would I contact to figure out which one is right or wrong?
Kelly –
Your email is a great example of what a mess these 1099-cs are turning out to be for so many people. You should not get duplicated 1099-cs. But trying to get it fixed is probably not going to be easy.
I am not a tax professional so I cannot give you individual advice. However, in the interviews I’ve done with other tax professionals, the advice they’ve given me is to first go to the source – the companies sending the 1099-cs and ask them for a correction. If you can’t get a 1099-c then file a statement with your tax return explaining the problem. It would be a good idea for you to get professional advice from a CPA or Enrolled Agent on this.
Let me know what happens!
Gerri
my husband and i have a gross income of 8,576.00. we received 3 1099-c this is also included in the gross income.. do we have to file income taxes we are both under 65…
Linda,
I can’t give you tax advice as I am not a tax professional. The IRS website says: You must file a federal income tax return if your income is above a certain level; which varies depending on your filing status, age and the type of income you receive.
Check the Individuals section of the IRS website at http://www.irs.gov or consult the instructions for Form 1040, 1040A, or 1040EZ for specific details that may help you determine if you need to file a tax return with the IRS this year. You can also use the Interactive Tax Assistant available on the IRS website to determine if you need to file a tax return. Visit IRS.gov.”
Hope that helps!
Hi Gerri,
first, thanks kindly for giving your time like you do.
I am nearly finished with my insolvency sheet, I wonder if you know -
when they ask for credit card debt on line 1, when I provide my documentation
along with the insolvency form, I intend to just send a piece of paper with the following itemized by line:
creditor name, last 4 digits of acct number and then balance due.
Do you think the last 4 digits of the account numbers will suffice?
Thanks,
Christi
To be honest, I have no idea. However, I would imagine they are more interested in the amount than in a specific account number. I would guess that if you listed it something like xxxxxxx-1234 it would be fine. But I am speculating.
well I’m going to give it a whirl as the gentleman on the phone from the IRS was did not indicate nor imply that it was needed.
Thanks very much once again.
I received the form 1099C from the Mortgage Lender. They wrote my current address on the form 1099C in the column of Debtor’s address. There is no property address written on that form. Now in the debtor’s column of the form, which address should appear? The Debtor’s Current address or the address of the property was mortgaged?
The instructions for the 1099-C, which give the guidelines that lenders must follow, state:
Box 6
Enter a general description of the property. For real property, generally you must enter the address of the property, or, if the address does not sufficiently identify the property, enter the section, lot, and block.
Gerri, thank you for taking the time to respond to these posts. I recently received a 1099-C. I was the victim of an extensive identity theft perpetrated by a family member while I was living abroad. I successfully disputed the 10 credit cards opened fraudulently in my name and was able to have all records removed from my credit report. However, one company refused to accept my dispute, but they never attempted to collect the debt once I disputed and once the credit bureaus blocked them from reporting to my credit history. Now, three years later, I have received a 1099 C cancellation of debt from this company.
I’m at a bit of a loss as to what I should do. Do I send the reams of paper documenting my dispute to the IRS along with my tax return? Do I need to engage an attorney or tax advisor? I would have to do a cost-benefit analysis in this case.
Thanks for your help.
We recieved a 1099c for a cancellation of debt for a car that was repo and sold at auction.My husband sign for my son to get a car and he did not pay the loan. it was repo and sold at auction. I now got a 1099 c and I am not sure what to do with it . I recieve two . one is a corrected revise 1099c. where do I put it and do I have to complaim it. we are retired and dont have much money.
When was the car repossessed? What is the difference between the two 1099-C’s you received (the original and the corrected one)?
Wanda,
If your husband cosigned the loan, then he is equally responsible for it as a co-borrower. You didn’t indicate what the difference it between the two 1099-Cs but if the amount looks correct, then the next thing to do is to go through Form 982 and try to see if you can avoid paying taxes on that debt because you are insolvent. There is a worksheet in Publication 4681 that you can use to figure out if you are insolvent. In addition, it would be a good idea for you to talk with a tax advisor as soon as possible if you are unsure about how to do this yourself.
Hello, here’s an interesting story. My mother received mail coming to me in an old married name from the early 1990s. Right there I knew something was up. She forwarded me the envelope and it turned out to be a 1099c from Capital One cancelling over $6000 from a credit card. I haven’t had a Capital One card in many many years and certainly not that kind of balance due. In fact, I did have a bankruptcy way back in 1992 which this card would have been included in and all debts were discharged. That was almost 20 years ago. I called the 800 number and wasn’t even able to type in my account number since I don’t have any idea what it is, but they did take my social and were able to track down the account. They said yes, that the account had been sitting around unpaid for all these years and they finally gave up waiting for me to pay it. I informed them that it was discharged in a bankruptcy a long time ago. I come from the mortgage industry and have access to a tri-merge credit report on a regular basis. There has not been an open account in my name with Capital One since the BK, and certainly not one with 18 years full of late payments and penalties! They have sent it through their investigation/dispute department and I’m hoping for an answer. Clearly something slipped through the cracks, but I am determined to NOT pay income tax on something that was handled years ago. My question is this, even if they can’t find the bankruptcy records ( I don’t know how long the county keeps those) isn’t there some kind of statute of limitations on how far into the future they can send out a 1099c to someone? I just wonder if this bank is up to something? Some kind of creative accounting? how many people did they do this to? Are they just trying to get tons more write-offs for themselves? This is truly crazy.
Shelley,
I am not sure why this is happening now. I have contacted Capital One but only received a general reply.
You don’t have to pay taxes on debts discharged in bankruptcy. They should correct it, but even if they don’t, my understanding is that you should still be able to claim the bankruptcy exclusion by filing Form 982. (I don’t see any requirement that you include proof that you discharged the debt.)
However, I would urge you to also file a complaint with your elected officials. You are not the only one complaining about this problem.
My husband and I filed Chapter 11 in 2008 when my husband and I were employed. We lost our jobs in 2009. We were unable to make our bankruptcy payments and stopped paying. My husband has been unemployed since 2009. He is advanced in years, as am I. We received a 1099-C from “ECAST SETTLEMENT CORPORATION” this week in the amount of $36, 431.91. We do not know which financial institution is represented by ECAST SETTLEMENT CORPORATION”. I went to work in April, 2011 making minimum wage. My job is our only source of income. My husband draws Social Security. Our assets clearly do NOT come close to the debt that was cancelled. What should we do? Thank you
Jo,
I recommend you try to fill out Form 982. If you are insolvent by IRS standards, you will be able to avoid paying taxes on part or all of this cancelled debt.
If you have trouble filling out the form, I would encourage you to get professional tax assistance.
Hi Gerri,
I settled a debt October 19, 2011 with a Citi credit card account. Today I called them and confirmed that it had been settled and to find out why I had not gotten a 1099c. They said they have 3 years to file a 1099c with the IRS and send me a copy. I was shocked since the IRS 1099c form instructions say to furnish Copy B to the Debtor by January 31,2011.
#1 Is this true that they have 3 years to file?
#2 Does this mean the debt is not considered cancelled until they file?
#3 What date do I use for doing my Insolvency worksheet?
#4 Can I file it on 2011 without the 1099c?
Hope you can help me understand this.
Thank You
Katherine,
I am not a tax advisor so I can’t advise you specifically. One of the tax advisors I consulted said that taxpayers should go ahead and report the forgiven amount on a settled debt to the IRS even if they didn’t get a 1099-C.
There is no question that creditors are making mistakes on these forms, and while I can’t say that happened in your case, the IRS instructions for Form 1099-C states that creditors must send a 1099-C when an identifiable event occurred and one identifiable event is:
A discharge of indebtedness under an agreement between the creditor and the debtor to cancel the debt at less than full consideration.
I’d recommend you also file a complaint with your elected officials in Washington.
I have not earned ANY income ($0.00) in the US since September 2009 and I live outside the U.S since that date.
However, in November 2011, I have settled my US credit cards (cancelled amount totals to $20650.00) and received 1099-C forms in the mail. As far as I know, a W-2 was not issued on my name for the years 2010 and 2011. (I actually don’t even how to check whether it was. I asked my last employer and they said they would not have that information.)
What should I do? Should I file taxes and how?
Thank you.
Oguz,
Just because you didn’t receive W-2 income that doesn’t mean you don’t have to file a tax return. I’d suggest you look at the IRS information or use a tax preparation software program to walk you through the process to figure out if you need to file.
My daughter worked for a company that paid for her to take CPA courses. When my daughter left the company before getting her CPA, her employer kept her last paycheck which paid back about 1/2 the CPA course. They informed her that the other 1/2 (over $600) should be claimed as debt forgiveness on her tax return. They did not send a 1099 to her. In this case, is it really debt forgiveness that needs to be claimed? She could write it off as a business expense too then. If she needs to report it, where on the tax return do you report it as income? And then she would also write it off as a business expense correct? Or something else?
Louren –
I am not a tax advisor. As much as I would like to help on this one, I suggest you talk with a tax professional.
This is a strange scenario. If your daughter has the company policy that was used when she took the course, then make sure she provides that to the tax professional. I have seen things like this reported on a 1099 as misc income not as cancellation of debt. Did they say it would be a 1099 for misc income or COD?
Hello,
I had an investment property in Colorado foreclose in August of 2011. The balance on my loan was $241,000 and the property foreclosed for $144,000. This left a deficiency balance of about $96,000.
I started receiving calls from a collection agency who claims that the are collecting for Freddie Mac. They are asking for a settlement on the deficiency balance.
In January of 2012 Freddie Mac sent me a 1099-A. But I have not received a 1099-C.
1) What is going on here? Are they going to send me a 1099-C and forgive the debt? Or are they trying to collect what they can on it with the intention of sending the 1099-C later?
2) If I do a lump sum settlement of say $6000 on the $96000 deficiency balance, can they or will they then still send a 1099-C for the remaining $90,000?
3) I am including the 1099-A in my taxes this year, but will the IRS be expecting a 1099-C even though I don’t have one? Does this increase my chances of an audit?
Thanks so much for your help.
John,
Unfortunately the answer is, who knows? As I explained in my other article, 1099-A in the Mail?, lenders are very inconsistent in how they are handling these. You may get a 1099-C, you may not. The 1099-A may be correct, or it may not be. They may try to collect the balance, or they may not. There is just no consistency here in what’s happening.
If you do a settlement, they are supposed to send a 1099-C for the amount cancelled. My guess is they will, but it’s anyone’s guess as to when they will do that. (According to the IRS Instructions for Form 1099-C, they are supposed to report it for the year it was cancelled). If you are insolvent, you may avoid paying taxes on that amount. If not, you could be looking at a hefty tax bill.
Given the amount of money involved here, and the fact that this can increase your risk of an audit, I would encourage you to meet with a tax professional with experience in these issue.
I received a 1099-c, the bank hasn’t yet foreclosed on me. This is for my principal residence in California. what do I do with this?
Ruben,
I would suggest you read my article, 1099-A In The Mail? How to Avoid Taxes on Cancelled Debt. It would be a good idea for you to talk with a tax professional about your situation.
I received a 1099C from a shady collection agency (Portfolio Recovery) that my lawyer went to a hearing with them to prove the debt, and they couldn’t. That was 2009.
Two years later, 2011, I started getting calls again and I sent them a cease and desist letter. I never heard from them since, but in February 2012 I received the 1099C.
How do I dispute this 1099C?
Also if I do include this amount on my 1040, isn’t part of the amount supposed to be in box #2 and part in box #3?
The cancelled amount according to them was $13740.00. they hyave the entire amount in box #2 and zero in box #3 for interest and penalty.
Thx
Donn
Donn,
The tax experts I consulted said you should first dispute it with the company issuing the 1099-C. Keep good records. If that doesn’t work you may need the help of a tax professional to dispute it. I wrote about what happens if a 1099-C is wrong on the Credit.com blog.
US Department of Education discharged a student loan for my husband as he is totally and permanently disabled and now receiving SS benefits. We received a 1099-C for this loan discharge and our accountant is stating that we have to add the over $7,000 to income (which causes us to owe money for taxes). I don’t see anything that addresses disability specifically but it seems crazy to me that this would not qualify for an exception.
Thank you so much for your help.
Julie –
I agree – that doesn’t seem right but it’s the current policy. Have you asked your accountant specifically whether you qualify for the insolvency exclusion?
We have a similar problem but it’s much more money. The very idea of paying the taxes is out of the question — the tax would be more than our total net worth. Nobody so far even understands my question. I’m afraid to “talk to a tax professional” because I don’t know if they are obligated to confidentiality.
Please do talk to a professional. It is not as bad as it seems. There are certain ethical standards that apply to CPAs if that is who you decide to use. They can only advise a client of certain things, but of course they cannot knowingly or willingly file a fraudulent return. But you are only seeking advice at this point, so no harm in asking questions. If you post more information then you may get some good opinions and references here.
In 2011 Litton Loan Servicing was bought by OCWEN. I am now on the hook for payments to OCWEN, but I received a 1099-C from Litton Loan saying they discharged $72,049. The phone number on the 1099-C form says the Creditor’s name is Litton Loan, but the phone number is for OCWEN. The numbers I had used previously for Litton now have a recording saying to call OCWEN. I called OCWEN and they don’t know what I’m talking about, probably because they are in India. I’m stuck in a circular loop! The amount was never discharged. Help.
Patric,
Have you read Form 982 and the instructions to see if you qualify for an exclusion under the Mortgage Debt Forgiveness Act? If not, the insolvency exclusion? That may be the easiest way to handle this. I am not a tax advisor, however, and I’d recommend you get help from a tax professional since this involves a large amount of money.
All was smooth sailing until I became aware of a 1099-C that my spouse has for a $30,000 student loan forgiveness. The debt was cancelled due to her disability. The problem is, the tax on this amount is far more than we could possibly pay. I’m not willing to pay it in the first place, because it was never my debt to begin with. This situation is probably going to cause us to divorce, and may cause my spouse to become suicidal. I cannot believe this is happening and all the information I can find is about people with mortgage “relief.” I cannot find one single mention of anyone else in a situation comparable to mine. Please help.
We’ve actually gotten three or four comments from taxpayers who got very large tax bills after their student loans were forgiven due to total disability. They are all, like you, in shock. It’s a policy that sounds like it needs to be changed. I would encourage you to write to your elected officials in Washington and ask them for help with this. Reach out to the Taxpayer Advocate as well.
In the meantime, before you panic or leave your spouse over this, go to the IRS website and get Form 986 and read the instructions as well as Publication 4681. You may be able to avoid taxes on part or all of that income by showing to the IRS that you are insolvent. If it doesn’t look like you qualify for the insolvency exclusion, please get advice from a tax professional if it looks like you will owe taxes on the forgiven debt. Perhaps the two of you can file individually and avoid the tax debt.
Don’t be too hard on your spouse for this. This has caught a lot of people unaware.
I received an IRS CP2000 form the other day listing a few items for which they are questioning / seeking a response to on my 2010 return. All of the items except one were non events and simply needed more documentation. However, my former CPA issued a 1099C to the IRS for my non payment of services becasue he not only overcharged me significantly for his services, but he screwed up my entire tax return in 2008 which cost me a lot of money in taxes and to have fixed. Becasue of his incompetnecy, I refused to pay the remainder of his invoice. So, unknown to me, he filed a 1099 c to the IRS for the amount he claims I owe him. I have read the 1099 C rules and regs andd it doesnt appear he can do this.
Can he do this, and if so, what is my recourse with the IRS becasue they certainly want an answer. How should i handle this with the IRS ? Thank you
David,
Ugh!! You can try to get the tax advisor to file a corrected 1099-C (you may need to get an attorney involved? Or file complaints all over the place…?) Otherwise you’ll need to get additional tax advice from another tax professional or talk with the IRS about how to dispute it. Sorry I can’t be more specific.
I am on disability and recieved 1099c for 17,000 on a 8 year old parent plus loan which was cancelled. I paid a 4 percent fee which 1 percent went into a insurance pool for bad debts. ,I should not have to show this as income due to fees paid. Help.
John,
According to the research I have done on this issue, the fact that you received a cancellation for disability and the fact that you paid an insurance fee don’t make a difference in terms of whether you have to pay taxes on this cancelled debt. (I am not a tax professional, however, so please do not take this as tax advice.) You need to figure out whether you qualify for an exception or exclusion. You can use Form 982 to do so. You can read publication 4681 for more instructions. Given the amount of money involved, I would also recommend you talk with a tax advisor.
We settled an SBA debt that had a personal guarantee.
We did not receive a 1099-c form from the bank.
Is there a way to find out if the bank reported the settlement without raising any flags.
Thank You
Jack,
If the lender sent a 1099-C it was required to send a copy to you in addition to the IRS. Unless you moved and your copy didn’t reach you, you should have received a copy.
Based on the other comments here, it does look like it happens to where you sometimes don’t receive a copy. If you want to know for sure you would have to request a copy of your records from the IRS. I am not aware fo this raising a red flag for the IRS because you cannot control when you receive the 1099-C from the company and as you can see here as well just because you haven’t received it yet doesn’t mean that they won’t send it later.
Hi,
If my husband and I received a 1099-c cancelling our mortgage debt for 2011, do we have to file our taxes jointly or can we file separately?
Verchetta,
I don’t see why it should prevent you from filing separately, but you’ll need to get professional tax advice on how to handle this. In Form 4681 the IRS gives this example:
Example 3—joint debt and separate returns.
In 2011, James and his wife Robin were released from their obligation to pay a debt of $10,000 for which they were jointly and severally liable. None of the exceptions to the general rule that canceled debt is included in income apply. They incurred the debt (originally $12,000) to finance James’ purchase of a $9,000 motorcycle and Robin’s purchase of a laptop computer and software for personal use for $3,000. They each received a 2011 Form 1099-C from the bank showing the entire canceled debt of $10,000 in box 2. Based on the use of the loan proceeds, they agreed that James was responsible for 75% of the debt and Robin was responsible for the remaining 25%. Therefore, James’ share of the debt is $7,500 (75% of $10,000), and Robin’s share is $2,500 (25% of $10,000). By completing the insolvency worksheet, James determines that, immediately before the cancellation of the debt, he was insolvent to the extent of $5,000 ($15,000 total liabilities minus $10,000 FMV of his total assets). He can exclude $5,000 of his $7,500 canceled debt. Robin completes a separate insolvency worksheet and determines she was insolvent to the extent of $4,000 ($9,000 total liabilities minus $5,000 FMV of her total assets). She can exclude her entire canceled debt of $2,500.
When completing his separate tax return, James checks the box on line 1b of Form 982 and enters $5,000 on line 2. He completes Part II to reduce his tax attributes as explained under Reduction of Tax Attributes, later. He must include the remaining $2,500 ($7,500 − $5,000) of canceled debt on line 21 of his Form 1040 (unless another exclusion applies).
When completing her return, Robin checks the box on line 1b of Form 982 and enters $2,500 on line 2. She completes Part II to reduce her tax attributes as explained under Reduction of Tax Attributes, later. She does not include any of the canceled debt on line 21 of her Form 1040. None of the canceled debt has to be included in her income.
Question – what if I have more than one 1099-c? They are both for discharged credit card debit. I am insolvent. One discharge is for 8/2011 and the other is for 10/2011. what date do I use to determine my insolvency at the date of the discharge if I have 2 discharge dates?
If i used my personal credit card to pay off a outstanding student and received a 1099-c, are their any exceptions for that since it isn’t income?
Thank You
Will – Are you saying that you used your credit card to pay off student debt, then either defaulted or settled on the credit card balance? If so, the IRS would still consider the “forgiven” or “cancelled” debt as income, regardless of the fact that it was used to pay off other debt.
At least that’s my understanding – I am not a tax professional so please don’t take this as professional advice.
I settled a credit card balance of approx. $40,000 for 15,000. The credit card was in my ex-husband’s name and my name, a joint visa account. Now we both received a 1099c for $25,000 for 2011 with our own social security numbers. My accountant called the credit card company and said that only one of us should have received the 1099c as now the Irs has both of our SS# owing $25,000.00. Totaling $50,000. The man at the credit card company said we can either split the amount or only one of us has to pay it. My husband said he will claim it on his taxes, but what am I supposed to do with my 1099c form. Accoding to the IRS it will appear that i also owe these taxes. should the credit card reissue only one 1099c. and if so what is the procedure. If not, what is your adivce. Thank you
Fran,
As much as I’d like to help, I am going to have to ask you to get your accountant’s advice on this one. You shouldn’t have to pay taxes twice on the same cancelled debt, but you will need your accountant’s advice on how to communicate what happened to the IRS.
I recently received notice from the IRS of debt cancellation $9000 from 2010. This debt cancellation was incurred because of a divorce. My ex was ordered to assume and payoff the debt. He did not pay it I was served paperwork to pay it. I paid the settlement. The Debt was in both of our names, but me the primary and as a result I received the 1099-C. I did not claim it on my taxes, as I recevied it after taxes we filed. What are my options here?
Sonya, I assume you mean that your ex was ordered to pay the debt in the divorce decree? I doubt that will matter to the IRS if you were legally responsible for the debt to the creditor. I’d recommend you read IRS publication 4631 and try to figure out if you qualify for an exclusion or exception. I would also recommend you talk with a tax professional for help as soon as possible. It’s not a small amount of money and the tax bill could be rather steep.
Hi,
I am currently trying to do my taxes, and because I had some money in my savings, and owned my car I believe that I was not insolvent at the time so I am just going to pay what I owe on my cancelled debts. However, I did not receive a 1099 C from one of my old credit card companies, and I would like to file my taxes but i am not sure what to do? Do I include the forgiven debt even though I don’t have the 1099 C form, or should I just continue without it and if it were to even come up with the IRS just deal with it then and since I don’t have any proof of having the form I should be ok right? even called the third party company I settled the debt through and he said I was like the 20th person to ask the same thing about the same Credit Card company!! Did they perhaps just ignore it?!! I don’t know!!! Paying taxes on settled debt sucks!!!! Any help with this issue would be greatly appreciated as it means I am either going to pay 150 dollars or 892 dollars to the IRS! What should I do?!!
David
This is a tough one David. I asked several tax professionals about this and received a couple of different responses. Only one said their opinion was that the taxpayer should report it anyway. The others said that the income wasn’t triggered until the 1099-C was sent. So I don’t have a definitive answer for you, and suggest you talk with a tax advisor.
My personal thought is that if you are going to pay taxes on the settled amount, then it may not matter whether you pay it now or when they send you a 1099-C unless your tax bracket changes…? The big problem arises for consumers who are eligible for the insolvency exclusion but don’t get a 1099-C until years later and can’t recreate the financial information needed for the insolvency worksheet.
I’ll add one more note: If you haven’t done so already use the worksheet in Publication 4681 to make sure you don’t qualify to exclude part or all of this debt from your taxable income. If you do qualify, and don’t include the 1099-C income on this year’s taxes, then at least fill out the worksheet and keep a copy for records in case they 1099 you next year or sometime in the future.
And let your legislators in Washington know the problems this issue is causing!
i just received a cancellation of debt for 2010, can the bank do that? and what do i do now with my 2010 tax returns? would i get penalty from IRS? the debt of cancellation was dated 4/28/10, my house shortsale date was 4/15/2010- i don’t know if i am going to get qualified for insolvency ….any comments?
Lori,
If I understand your question, you completed a short sale in 2010 but the lender just sent you a 1099-C for 2011. Is that correct? If so, then it sounds like you need to report it with your tax return this year. Read publication 4681 to find out if you may qualify for an exclusion either under the Mortgage Debt Relief Act or the insolvency exclusion. Although the instructions don’t answer a lot of questions, they can be helpful in basic situations.
Also, I assume this is a large amount of money since a home loan is involved. For that reason, I’d really encourage you to talk with a tax professional for specific advice. You don’t want to get this wrong and discover you owe a big debt to the IRS!
Am attempting to fill out a Form 982 on my own, late filing tax year 2010. I have a total of $16,500 of cancelled credit card debt by two credit card debtors ($9,000 cancelled in May 2010 and $7500 cancelled in Aug 2010) per “box 2″ amts on the two 1099-Cs I received. I did two separate spreadsheets showing assets/liabilities for the two individual dates of cancellation. For May, I had insolvency of $14,000 so the $9,000 would be fully excluded. For Aug, I had insolvency of $4,000 so I would still need to report $3,500 as income (as opposed to $7500 from that 1099-C). After checking line 1b, I can’t figure out what number to put on line 2 of Part I (Form 982) and what to put on line 10a Part II (Form 982). I assume I put $3500 on line 21 of the 1040 as income. Do I put $13,000 on both Part I line 2 and Part II 10a? Very confused… THANK YOU for whatever help you can offer.
Sherry,
As much as I would like to help, I am not a tax professional and I can’t answer specific questions like this. I am going to suggest you talk with a tax professional. I’d also suggest you contact your elected officials in Washington and let them know what a difficult time you are having with this form. They need to understand what taxpayers are dealing with here!
Gerri,
When doing your taxes on your cancelled debt, if saying you were insolvent during the time your debt was settled is that a red flag for the IRS to audit you to see if your telling the truth about your insolvency? I almost feel like it is worth me just paying the taxes the I owe on the cancelled debt just so I don’t have to worry about the IRS auditing me.. but then at the same time I feel that soo many people will be in the same position and will the IRS actually go after such a small tax payer such as myself? I do not know what to do!!
David BIanca
David,
I haven’t seen any statistics on whether claiming the 1099-C insolvency exclusion increases your risk of audit. Keep in mind though that 6.3 million of these forms went out to taxpayers this year, so I am not sure whether the IRS has the resources to significantly increase the number of audits due to these forms. But that’s just my speculation. Before you give up a legitimate tax deduction, I’d recommend you at least talk with a tax advisor.
Hi, I have a very complicated situation. A and B purchased a property under both of their name. And after few years later, A took out the home equity and A also borrowed another loan (which is i called it second loan) under both of their name. B didn’t even aware of when A has taken out the home equity and applied for second loan because all the time B was on deployment. Actually, A has forged B’s signature and B doesnt have intention of suing A. And after few years later, B found out this matter. Then, last year they did a short sale for the house and they receive form 1099C from the bank for the mortgage and also for the second loan. The total amount of the forgiveness debt is 392K. And all this time, B has been the one paid for both of the mortgage and loan interest every month so on these last couple years he has been claiming for tax deduction from the mortgage and also the second loan. From my knowledge, if a loan is used for home improvement then its not taxable but the problem is A used up all the money (392K) for his business. And B’s name was not on the business. And since receiving this 1099C, they have been arguing who should be the right person to file both loan in their tax? And if this time, we let A to file for both 1099C, will we get audit? If they some of the money (lets say 15%) use as home improvement and the rest report as insolvency in their tax, does it gonna help? And also A has been unemployed for couple years and if suddenly A filed for both of the loan, does B will get problem? Or may be B should file for both loan in his tax and claim for insolvency? Does this gonna help B? Sorry too complicated case. Hope u can give me some advice. Chloe
Chloe – You really do need to talk with a tax professional with experience in 1099-C matters. This is a very large amount of money – and it could result in a very large tax bill. Getting professional advice on this is critical.
Hi, My husband received a 1099C from portfoilio recovery that reads Best Buy or S&H Master Card. The dollar amount is 933.00. We haven’t ever had a credit card from Best Buy or S&H Master Card. This CA has my husbands social security number on it but we are not sure what to do. tried calling but says it is his
I forgot when I spoke to the woman at portfoilo she said the account was actually HSBC and the intial amount was 600.00 and they took it over in 2009. My question is should I still dispute the 1099c for it reading Best buy and S&H Greenstamps Mastercard and 933.00 in box 2 and nothing in box 3
I just checked this website again and realized that other had posed questions in regards to my Deed In Lieu 1099-C. I was told to only fill out the form 982 and only fill out part One of the form. Nothing else and to check the box E Discharge of qualified principal residence indebtedness. Fill in the amount discharged. Nothing else was to be filled out. Hope this helps and sorry I am so late in replying.
Thanks Cheryl for following up!
Hi Gerry,
Thanks for ur advice. I have some suggestion on the case I mentioned to u previously but i am not sure if my suggestion is a good idea or not so I will be glad if u can give me some more advice. Continue from my previous message…if let says, B only file for 1098 in his income tax this time (the reason is because B has high income so he need to claim tax deduction in order to avoid high amount of tax beside B was the one that pay for both of the mortgage all this time) and then let A files for both 1099C in his income (the reason is because B is unemployed and doesnt have any asset). Do u think this way is the best way for them to pay less tax? If lets, say A gets audit, may be due to his financial situation, will IRS consider him to pay less amount of tax? Meanwhile if B gets audit, he just need a letter written from A send to IRS states that A has agreed to be responsible on tax amount occured on the debt cancellation. And both A and B agreed to split 50-50 for the amount of tax owed.
Hi Gerry…in the case i mentioned previously, will insolvency help A or B in this case? Do u mind explain to me whats the rule in order to be insolvent? Does insolvent meant the amount of debt cancellation is more than the assets? B’s assets is only a car which is about 50K while the amount total of debt cancellation is over 300k, does it mean that B is insolvent ?
Chloe,
I am going to emphasize again that you really should get professional advice about this – it’s complicated as I’ve learned from all the research I’ve done on this topic. (And I have talked with numerous tax professionals while researching this series.) As far at the insolvency calculation goes, there is a worksheet in IRS Publication 4681 you can use to calculate insolvency.
Gerri-
Last year my father in law passed away. I contacted his credit card company and they said that they would look at the debt (over $5000.00) and possibly send a 1099-C. As of now I still havent received one for him. Can I complete his tax return without it?
Gerri, I recently took my taxes to a retail tax service, with my 1099-C included, my1099-C box 2 amount is $71279, box 3 is $11329…they told me that I could use box 3 as the canceled debt amount because It’s Interest. Is this true? Line 2 of Form 982 is the difference. I want to make sure they are filing this accurately, but maybe I need to go to a CPA.
Shannon,
Are you sure they said you could use the amount on line 3? I am not a tax professional, but that doesn’t make sense to me. That’s cancelled interest, not cancelled debt. If anything, the issue of whether you have to include cancelled interest is the controversial one. Given the amount of money involved, I’d definitely suggest you consult a CPA, enrolled agent, or similar professional. But you may also want to read Publication 4681 yourself. It sounds like you are trying to stay on top of things and that might help you understand how to proceed.
It was an enrolled agent that I saw, that’s why I’m so confused, but he said he asked several others and they said that’s what they have done in the past. On my tentative 1040 he gave, line 21 is $11329 and it says cancelled debt, so I think i def need to consult elsewhere. Thanks Gerri appreciate it.
Hmmm….
I am not a tax pro so not trying to overstep any bounds here, but it might be worth getting a second opinion on. I will say it’s a confusing issue. I’ve gotten conflicting information from the expert sources I’ve spoken with too!
I started filing for bankruptcy in December 2011, taking the pre-bankruptcy course based on a full credit report of that month. My attorney finally filed early February 2012, and the debts listed were all discharged earlier this month (March). However, in the middle there, I received a 1099C for one of the credit card debts included in the bankruptcy, that stated the debt was forgiven on Dec 31, 2011.
So, this debt was included in the bankruptcy case, but technically, I guess, it had already been forgiven. When you file the form 982, does this qualify for the bankruptcy exception?
At any rate, I’m disabled and most definitely insolvent. Can one file a Form 982 and claim BOTH bankruptcy AND insolvency, just to be on the safe side?
Also, I realize the earlier questions about student loans discharged dealt with married couples filing joint taxes, so their case MAY be different from mine since I’m single. My bankruptcy attorney is in the process of getting the student loans discharged–isn’t this then included as part of a bankruptcy exception in Form 982? Or since it’s a separate hearing, is it technically NOT part of bankruptcy in the eyes of the IRS? Clearly, I’ll have to deal with this next year. (Again, I could just claim insolvency, since the amounts are so astronomical, but if I could use the bankruptcy exception, I wouldn’t have to do any calculations.)
I’m also wondering, if I file a Form 982, that means I do NOT include the income in my 1040A, correct? I just put my Supplemental Security Income figures in, and just include the Form 982 as an additional document that is not otherwise referenced by mjy 1040A?
Thank you for all your help!
Karl,
As much as I would like to help, I am not a tax professional and can’t answer your questions in detail. I don’t see any reason to file for both exclusions for the same debt, but it may be that you have to claim a different exclusion for the student loan debt than for the debts discharged in bankruptcy. So I’d suggest you talk with a tax professional who can help you figure out which exclusion(s) to claim.
It is good, by the way, that you are thinking about this now, even though you may not have to deal with it officially next year!
Hi I owned a house in Florida with 2 other people, we owe more on the house than it was
worth we owe $132000. we sold the house in a short sale for $42000 now the bank send the other 2 owners a 1099-c for $95000. I live in NY and have not received a 1099-c is there a way to go around this 1099-c and avoid paying taxes
Hernando,
I would encourage you to talk with a tax professional about this. I am concerned that the lender may have filed a 1099-C in your name as well, but that a copy did not make it to you.
hi i contacted the bank and they filed a 1099-c in my name also
my question is how do i file this in my taxes in order to avoid paying the taxes if any.
As suspected, there have been tax cases against the IRS about 1099C reporting, so the Tax Court has sorted through some of these 1099C issues. There is hope on old debt 1099C debt and inaccurate reporting on 1099C. The two cases below have to do with timing of the reporting, and the consumer won against the IRS. These are recent cases and hold some weight. Take a look:
http://www.wscpa.org/Content/39754.aspx
Gaffney v. Commissioner, TC Summary Opinion 2010-128, 8/30/10
Kleber v. Commissioner, TC Memo 2011-233, 9/28/11
Source: Credit.com (http://s.tt/15qtt)
I settled a credit card debt six YEARS ago, and they JUST sent me and my husband a 1099 for the FULL amount of the debt, NOT the delta between the settlement and the debt. I have two questions. Is there a statute of limitations on how LONG a credit card company has to send you the 1099? What if the 1099 they send you is for MORE than the debt was? I have a mess on my hands. Can someone please give me some advice?
Deb,
There is no simple answer to this question. It sounds like the credit card company has it wrong, and you are stuck trying to clear it up. I wrote some additional articles about this problem. You’ll find them in my post: A Slew of Tax Tips to Clean Up Your 1099-C Mess
Would i need to claim my student loan. It was discharged due to the fact that I was working and my lungs were damaged and I went on total disability from my job. I was told I would lead to death.
By discharged, do you mean discharged in bankruptcy? Debts discharged in bankruptcy do not create taxable income. On the other hand, student loans that are cancelled (outside of bankruptcy) due to total disability do create taxable income. However, you may be able to exclude that income from your taxable income if you can show the IRS you were insolvent at the time.
I should of said students loans were forgiven due to my disability from being injured on the job.
Can you tell me if life insurance policies under my name count as assets if they have cash value?
Yes, Peter, if you look at the insolvency worksheet on page 6 of Publication 4681, cash value of life insurance is listed as an asset there.
I recieved a bill from the IRS showing a 1099 for forgiven debt that is more than 15 years old. I called the company listed on the form and I am sure they purchased the debt but they could find no record of it. They sent the form to the IRS so they must have had a record of it at some point. I never recieved anything from them, no phonecalls, no 1099 no awareness that they were seeking payment. How do I find out when the debt was forgiven? No one seems to be able to give me the answers I need because at the time of a vehicle accident, that caused the debt, I was unemployed with no assets.
Deborah,
I would urge you to push hard to get the company that issued it to correct it or change it to zero. They shouldn’t be sending you a 1099-C if they don’t have the documentation to back it up. You may want to tell them that if they don’t you’ll get an attorney involved. In the meantime, make sure you talk with a tax advisor about how to handle it on your tax return.
Thank you very much for the advise. I will continue to push and follow up with what happens. Thanks again.
My chapter 7 bankruptcy was discharged in November 2010. The rental property I owned was included in the discharge. I has been in foreclosure for over a year so I decided to do a short sale. Will I need to pay taxes/1099 C on the first and second loan since the entire debt was discharged in the bankruptcy?
Debts discharged in bankruptcy can be excluded from your income. See publication 4681 for more information.
I had a car loan with a company 11 years ago and voluntaily gave back the vehical. I have only received 1 notice from the company that the car was sold at acution and i still owed a little over $2000.00. ( this was 11 years ago). I never received any notice from the company again. This year I received a letter from the IRS saying I owed taxes for this debt because the company filed a 1099. My question is Is the a staue of limitations for a company to file a 1099 on a person? Can the IRS still tax me after 11years?
I have a small business loan ($3k), but business has been slow the past couple of years and I simply could not make my payments. It was through an alternative lender and I recieved a 1099 -C this year showing they had cancelled the remaining principal balance ($1,500). I know it will show as income to the IRS, but what happens if I can come up with $1,500 to pay back the lender? How will the IRS find out that I have made the lender whole?
The question i have is that my wife and I divorced 2 years ago i took over the rental properities one of the properties with her name on it we have tried to sell splitting the proceeds, but never could sell it now a year later my wife files for bankruptcy and i recieved a 1099C of over $50,000 of cancellation of debt which was the amount of the loan i thought it was odd considering i have been making payments to the loan this whole time i never filed a bankruptcy so why is it im recieving this from the bank when she was the one filing and i continue to make the payment this does not make sense to me what so ever i tried calling them about it several times and they said because my name was on the loan as well even though im still paying on the loan and she did not recieve a 1099C just me and she was the one that filed not me..i am confused
Greg,
Your ex will not be responsible for the debt or for the 1099-C income since she discharged her responsibility for the debt. But since you did not file, that leaves you on the hook for the debt. However, as you point out, you are still making the payments so that should not trigger a taxable event for you.
Given the amount of money involved you need to talk with a tax professional to make sure you fill out your tax return correctly. It sounds like the lender isn’t going to fix the 1099-C so that means you’ll have to include information with your return explaining that you have not stopped paying the debt and that the 1099-C you received is not valid. Lucky for you, that could increase your risk of an audit.
the ending of 2008 my house went into foreclosure , first I was with Worldwide then with WACHOVIA . In 2011 I got a claim form from the state of california DEPARTMENT OF JUSTICE to fill this claim form to get $2000.00 but this is only a notice of proposed class action settlement and the checks will be mail around the second quarter by Wells fargo because they took over WACHOVIA. And today is 5/8/2012 but no 1099-c . Do I need to call the bank or the IRS? Please advice
I am not sure I understand your question. Are you concerned about the fact that you did not get a 1099-C for the foreclosure that occurred in 2008? If so, then I would recommend you meet with a tax professional who can help you determine how to proceed. It’s complicated, unfortunately, and not always straightforward in situations like yours where it may not be clear exactly when the “cancellation of debt” took place.
As for the settlement, that may not create taxable income, but you’ll have to ask a tax professional whether it will.
I doubt the IRS is going to provide the guidance you need. Given that this is probably a large amount of money involved. I’d suggest you get professional tax help.