Can someone confirm this?

You seem to be a little confused. It is normal for a OC to charge off, sell the debt and take a tax deduction for any loss. IF an OC sends a 1099c to the IRS and the debtor, they are saying the debt is forgiven or no longer owed. They can't both forgive the debt AND sell it. It would be similiar to you selling one car two times.

 

Nopie,

If one writes off a debt as bad debt they get a tax deduction for the appropriate "Marginal Tax Rate".

But the debt is still owed. If later it gets collected it is then re-reported as income, thus reversing the original deduction.

Merely a shuffle in tax liability from the CURRENT years taxes, to the taxes of the year in which the debt IS collected.

This is why, technically, we should be 1099ing our settlements.


See?

 

Nopie. Not after that I don't understand.

(LOL)

 

Ummm, actually I think there is some confustion. It is normal for a OC to charge off AND write off an uncollectable debt(and sell it to a third party). The amount written off has to take in account whatever amount they sold it for. It is NOT normal for them to send a 1099c to the original consumer AND sell the debt. By sending the 1099c the OC is saying to the IRS the debt is forgiven or settled and no longer owing. Obviously they can't do that AND sell it to a third party to collect on. Please correct any mistakes in my post.

 

I'm sure not no tax expert by any stretch of the imagination. I know almost nothing about the subject at all. I don't know all that much about bookkeeping either so I'm just guessing when I say that I think that when the company writes it off as a tax loss they don't lose the right to sell it to a 3rd party and they don't lose the right to collect it from the debtor either.

Seems to me that the idea that if they write it off they can't collect on it is nothing more than "common law" thinking which simply means that the person who thinks that way is trying to enforce his belief that their ought to be a law against them taking a tax write off and collecting on it too. You would be amazed at how much of the stuff that's touted off on people is based on nothing more than "that's the way it ought to be" thinking and not what the law or the facts really are. The internet especially abounds with that kind of LTU (Looney Tunes University) thinking.
And people want to believe it because it sounds soooooooooooo good.

Actually, common sense thinking tells me that when they write it off they don't get anything for it. They just don't have to pay taxes on it. So they don't lose the right to collect on it.

But I also fail to see the logic behind the idea that it should be considered as income to the debtor either. Now maybe that portion of the debt that is for whatever amount of actual benefit the debtor got. Let's say he got new false teeth and those false teeth sold for $600. He didn't pay for them or maybe he did pay for let's say 25% of them. But now he owes some collection agency $1200 due to all the late charges, interest and what have you they tacked on.

That tack-on didn't do him any good and he got not one crying dime's worth of good out of it. It was all "pie in the sky" money and never real money in the first place.

Now somebody, collector or whomever files a 1099 on the debtor for the $1200. My LTU thinking in this case is that the person or company who filed the 1099 ought to be liable for a fraud charge by the debtor and a violation of falsely reporting to the IRS.

If it isn't that way then it ought to be. (LOL)

 

Bill, stop confusing everyone. A 1099c is for CANCELLED debt. Says so right on the front of the form.

http://www.irs.gov/pub/irs-pdf/f1099c02.pdf

Now then my copy of Funk & Wagnalls Standard Desk Dictionary defines "cancelled" as:

"2. To render null and void; annul"

Ok, so the OC may not FORGIVEN this debt, but the OC has admitted to voiding the debt by filing the 1099c.

 

I stand corrected.

And I quote from the IRS pdf..

"If a Federal Goverment agency, certain agency connected with the Federal Government, financial institution, credit union, or organization having signifigant trade or business of lending money (such as a finance or credit card company) cancels or forgives a debt you owe of $600 or more, this form must be provided to you."

'nuff said. A 1099c DOES indicate debt was forgiven.

 

Really now!! How do you think I am confusing everyone when I admitted right up front in plain easy to understand every day english that I didn't know much of anything about it and could only guess at what it seemed like to me. Some people sure like to slam others even if they have to invent stuff to do it. Seems some people just aren't happy unless they are putting somebody down.

Ok. then it's fogiven, cancelled and all of that. Butch was going to come up with a comment or two as well and from the hints he gave I'll bet that will be interesting too. He's always got good posts.

 

Re: Re: Can someone confirm this?

You still seem really confused. An OC charges off a debt at, typically, 180 days. This simply means the OC is saying it is no longer paying as agreed and they believe the debt will default.

It is written off when the accounting division believes the chances of collecting it are slim and they are writing it off to be able to deduct it from income. Both of these can happen without a 1099c.Typically at this point it is sold to a CA for pennies on the dollar.

A 1099c is sent to both the IRS and the debtor in the case of a settlement for less than the amount owed (or if the debt were completely forgiven). The IRS would require you to pay taxes on the 1099 amount. Also even with a 1099 both OC and CA can show a collection account. They would just need to mark it settled or paid.

You do not typically ask for a 1099 unless you have negotiated a settlement and are afraid the collector will resell the debt to another CA. Even in that case I personally would not ask for a 1099.

 

Re: Re: Can someone confirm this?

OK. Thanks Pnwman. This is most definitely something we need the opinions of knowledgeable people like yourself on. I know I'm dumber than a box of rocks when it comes to taxes.

But I'm still intrigued by Butch's comment below and I sure hope he will come back in here and discuss his thinking on that statement. I'm quite sure he will do just that sooner or later.

 

Re: Re: Can someone confirm this?

I think that butch's comment is that by trying to get a 1099c from the OC it pretty much solidify's any settlement agreement.

I have a radical idea. Why not send in a letter to an OC for an unpaid charge off requesting a 1099c?

Dear Creditor,

It has recently come to my attention that (OC name) has written off account #xxxxxxxx to profit and loss and it is my understanding that Internal Revenue Service tax code requires when such an event occurs involving amounts of $600 or more a form 1099c is issued.

The individual recieving this form is responsible for paying income taxes on the amount written off.

To date, I have yet to recieve any such form from (OC name). Perhaps it got lost in the mail or was overlooked.

I do not want to get into any trouble with the Internal Revenue Service for not paying any taxes unknowningly due on a write off.

Please remit a form 1099c immediatly bearing the amount originally written off during (time of charge off) so that it may be included in with this years tax return.

Very truly yours,

Dixiedrifter

This letter would be aimed at unpaid charge off accounts that have recently charged off in the last year or so and during the months of February to April 15.

I admit its crazy, but if there is some internal confusion or miscommunication as to what a form 1099c is amongest the OC, it might result in one being issued, the debt being forgiven by the OC, and thus subsequently helping to eliminate any CA claims.

A postage stamp costs .37¢. Figuring a income tax rate of 20% on the $600 the minimum payoff of sending such a letter would be around 1297 to 1 should the letter work.

 

Re: Re: Can someone confirm this?

If that's the case then it seems to me that there should be a way to claim that late charges, overlimit charges and the like are not income to the debtor at all and that the 1099 c is false and fraudulent and that if they don't get rid of all those kinds of charges you will file a complaint with the IRS.

There should be some kind of way to actually file the complaint too and make it official. Doing that should be sufficient to raise lots of eyebrows at the IRS and maybe get them a whole big bad gang of IRS auditors going over their books with a fine tooth comb.

Bet they wouldn't like that one little bit.

Question is, is there any way to actually file such a complaint with the IRS and hope to make it stick?

 

Re: Re: Can someone confirm this?

I just got a 1099C from Cap 1. It states my original charges only of 647.00. The CA is fixing to get a rude awakening, though, they are trying to collect over $1700!!

 

Re: Re: Can someone confirm this?

Seems to me you could hit them with attempted fraud at the very least.

 

Re: Re: Can someone confirm this?

It would be similar to you selling one car two times.
pnwman |
====================
I just did that yesterday.
Sold it to the same guy twice within a week.


The END ************************* LB 59

 

Re: Re: Re: Can someone confirm this?

hmm, I like the idea behind this.. if you can get a 1099 from the OC, then the CA's are screwed! I'm wondering if it would be better to do this before dealing with the CA, concurrently, or after pushing for validaiton, etc.. I currently have the opportunity to test this out...

 

Re: Re: Re: Can someone confirm this?

Well, if the idea holds any water at all then I would say that as soon as you can after you get a notice from the collector that they have it then it has been charged off. So you can demand a 1099 form from the creditor then use it to hammer the devil out of the collector and then go against the OC for filing a false and fraudulent 1099C as well. If they added junk charges to the bill that is.

Now then, I don't have the foggiest idea if that would work or not but that's what I would like to see proven possible and correct.

What I would like probably comes somewhere closely equivalent to trying to ask for a drink of ice water in Hell however.

 

Re: Re: Re: Can someone confirm this?

A charge off does not normally generate a 1099. Only if the OC is saying they have settled or forgive a debt would there ever be a 1099.

Also realize you are trading the CA for IRS! They will want taxes due on the unpaid debt or roughly 30% of it. I would much rather deal with a CA than the IRS. Talk about fees and interest!

In any event good luck. I would much rather deal with disputes than the direction you guys are taking.