Has anybody here received form 1099-Cs at tax time after settlements?

[Anonymous]

  I had some cards get out of control from my younger days of spending while living at home.   I finally got in a settlement program for two years and managed to come up with enough money to settle with them and pay the settlement company off and be done with them.  In the mean time, they were running up the balances so fast with fees and interest that the balances exploded and I eventually settled most, almost where they were to begin with.  

  I had no idea the forgiven amount would be classified as income.  I did my taxes as normal, got my return, spent it, and then started getting 1099-Cs in the mail.  My settlement company sent me a tax form called Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness.  Which is supposed to eliminate some or all of the forgiven amounts from your gross income. 

  Has anybody used this form?   I've got 5 out of 6 1099-Cs back.  The sixth one is supposed to be from HSBC but they (illegally) tried to collect on the same account twice and didn't get one out.  I can't get in contact with anybody that will send me one.  I've proven to the second CA that the debt was paid and forgiven with another agency.  They tell me to call HSBC.  I call the company and get re-directed back to the CA.  Which is why I haven't ammended my return yet. 

  Anyway, the local H&R block hasn't even heard of form 982 but it's legit.

  Anyway, if this form doesn't work for me, I will owe 2600 to the IRS over fees and interest that were reduced.  Money that I never got or spent.  The reduced amount severely jumps me up into the next tax bracket and my settlement company never warned me that I would be facing this dilemma.

  Just wondering if anybody else has used the form and what the outcome was.  Thanks.

[Anonymous]

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cardkeeper1 wrote:

  Money that I never got or spent. 

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In a way, it is money you got and spent. You bought something that caused the debt and then the debt was forgiven.

I've never had a 1099 but they are required to send them.

H & R Block has not heard of that form b/c very rarely will you find a CPA at H & R Block. Most of the employees take a 12 week course to work there. High School is only education required.

[momof2]

This happened to me, here is how it works

if you pay a debt that is $600 less that what you owe for a settlement, ex my cell bill was $1212 they settled for half $606, because the amount settled of the original bill due was over $600, the IRS considers this as INCOME, so when you file your taxes this must be provided to your tax preparer, since you already did your taxes before getting these forms will will have to file a amended return, the 1099-c IS reported to the IRS so if the IRS decides to audit you and they see that you didnt file the 1099-c's with your tax return, you will be liable for paying the past taxes due on it plus penelties. it sucks i know, cause before the 1099-c was added into my taxes my refund would have been $1558, but after the 1099-c was added in my refund dropped to $1408, so you must contact the IRS about filing an amended return before it bite's you in the butt one day.

Message Edited by momof2 on 03-28-2008 12:23 PM

Message Edited by momof2 on 03-28-2008 12:24 PM

[Anonymous]

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cardkeeper1 wrote:

    My settlement company sent me a tax form called Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness.  Which is supposed to eliminate some or all of the forgiven amounts from your gross income. 

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I'm curious. Do you mind sharing the reason marked for excluding the income? Was this part of a bankruptcy?

[Vapchez]

Just interested in this form.  Let us know what you find out.  I was hit with this same tax several years ago when I settled a charged off CC and got a 1099.  I was really surprised and felt like I'd just been penalized for paying off a debt.  I looked up the form on the irs.gov website. Below is the link:

http://www.irs.gov/pub/irs-pdf/f982.pdf

[BBYGRL]

Yes. I received one from a settled account with NCO (I hate them by the way). I had to claim it as income last year.

[dragnldy]

I've had two settlements, one with NCO.  I've never received a 1099-c.