Old Debts Catch Up With 1099-C Recipients
March 2nd, 2012 by Stephanie Erickson
With new 1099 regulations in full swing this tax season, many taxpayers are confused and frustrated. Understandably so when they receive a 1099-C form regarding credit card debt from 1986, which is what happened to one individual. He received the 1099-C from his bank, inquired about it, and found it was from a credit card he had in 1986, which was charged off in 1989. Additionally, the official debt forgiveness date listed was 12/31/2011, although he claims he has had no contact with his bank in decades.
It’s examples like these that overwhelm the 6.3 million taxpayers receiving the forms, especially when the rules are unclear and recommendations from tax preparers vary. What we do know is the 1099-C forms are distributed by creditors and debt collectors to individuals who have debts that were forgiven, never paid back, or wiped out in bankruptcy; according to the IRS, these figures should be reported as income. Kay Bell, contributing editor for Bankrate.com and author of The Truth About Paying Fewer Taxes says the new 1099 reporting requirements are a push by the IRS to “get more information to get people to pay what they owe regardless of the source.”
This doesn’t clear up any confusion as to why these old debts are suddenly being reported, however. The National Taxpayer Advocate said, “Creditors sometimes make errors on the form that debtors then may have to wage an uphill battle to correct.” Many taxpayers have inquired about a possible statute of limitations on cancellation of debt income. It seems that the statute of limitations (which varies by state) is only applicable if the debtor has been sued for the debt, raised the statute of limitations as a defense against the collection of the debt, and the creditor did not appeal the decision.
Taxpayers want straightforward answers – which seems unlikely with the difficulty of contacting the IRS and the conflicting advice from tax professionals. But the overall recommendation is just that – contact a professional if you do receive the 1099-C form. The main issue with this is that the people who receive the forms can’t afford professional help, which is probably why they’re receiving the 1099-C in the first place (because of debt). Several commenters on credit.com agreed, saying they don’t normally even file tax returns due to their limited incomes, so how would they be able to afford a consult? Rob Deines, tax associate with ProVision PLC, says, “[Creditors] don’t get to choose when they send the 1099-C. If they haven’t tried to collect that debt in 10 or 20 years, then they are severely delinquent (in filing Form 1099-C).” Solutions to the 1099-C confusion seem hard to come by, but overall taxpayers should try and get good advice and follow the rules to avoid any (additional) IRS penalties.
Tags: 1099, IRS, TIN
Posted in 1099News Tax Blog | No Comments »
Convey provides tax information reporting services and software to businesses to make IRS compliance clear and uncomplicated. U.S. federal tax advice contained in this web site is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter that is contained in this document. (iii) The taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.
