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1099-C issues and charge off,Please help!!

Frequent Contributor

1099-C issues and charge off,Please help!!

Hello everyone,I just got a 1099 for a debt that supposedly has been forgiven.Can someone explain me what "forgiven" is suppose to mean,I know its when they forgive the debt and the 1099 is for taxes purposes.My question is, why is in my credit report and included in my utilization? (it was a credit card with sears)
Message 1 of 20
19 REPLIES
Moderator Emeritus

Re: 1099-C issues and charge off,Please help!!

By law creditors that write off bad debt, and don't resale it, must file a 1099-C. In the eyes of the IRS the amount forgiven is viewed as income and is taxable in certain situations. Check on irs.gov and they have a list of conditions which spell out the tax impact of it all.

 

If Sears is reporting a balance, then it's possible that Sears is misreporting. They should be reporting $0 if they issued a 1099-C for the full amount. Is the date of the 1099 newer than the reporting date of the Sears TL? If so, you can always GW them asking for a deletion.

Message 2 of 20
Community Leader
Epic Contributor

Re: 1099-C issues and charge off,Please help!!

When a creditor does a charge-off, it does not "write off" the debt with the consumer.  It is a bookeeping measure that shifts the debt on their accounting ledger from a receivable asset to an uncollectible bad debt.  Thus, an internal "writeoff" that reduces their tax obligation.

 

The consumer still owes the entire debt.  If ultimately settled for less than the full amount, the IRS views the difference as income to the consumer.

If not settled, I see no forgiving of debt that constitutes income to the consumer.

Message 3 of 20
Frequent Contributor

Re: 1099-C issues and charge off,Please help!!

Thank you for your response llecs,sears it's been reporting it for a long time,faithfully every month for the past years,the 1099 is dated 1/29/2011.What should I say to this clear? Send the 1099 letter to Sears or to the CRAs? Thank you in advance,I appreciate it as I have no ideas how this things work.
Message 4 of 20
Frequent Contributor

Re: 1099-C issues and charge off,Please help!!

Robert,thank you for your input,but why did they give a 1099 then and says that the debt was forgiven?
Message 5 of 20
Moderator Emeritus

Re: 1099-C issues and charge off,Please help!!

You can probably make the argument that it's misreporting, but I'd personally send a GW stating that you had received a 1099-C due to their write-off and forgiveness of the debt and that since they are showing the balance owed on the CR, to delete instead of correcting it (assuming you don't need the age of this Sears).

Message 6 of 20
Frequent Contributor

Re: 1099-C issues and charge off,Please help!!

Thank you llecs,I will do that and post back the results for the newcomers.
Message 7 of 20
Regular Contributor

Re: 1099-C issues and charge off,Please help!!

Also beware that they reported that to the IRS. If you did not claim the forgiven amount on your tax return, you will be getting a bill. This happened to me three years later. They ended up taking the amount out of my next years tax return, and I had to fight hard to get it back. I was billed/paid $903. The good news is there is a possibility of insolvency. The IRS will send you a notice with all of this information. DON'T IGNORE IT. There is an insolvency worksheet you can complete and they might possibly forgive you. So, keep good records during this time so you will have the information when you need it. This same thing happened to a friend of mine.
Message 8 of 20
Established Member

Re: 1099-C issues and charge off,Please help!!

CC40 makes a good point, if the 1099 C is dated for January of 2011 you should have included on the tax return you filed this year. The insolvency rules may help you if you ca demonstrate that. If you didn't include it on your return you can be proactive since it just would have been filed a few months ago, go to a local IRS office and get a 1040 for to file amended return, then correct the mistake and refile. The people there can assist you in getting the forms and instructions to complete  an amended return. 

 

Did you settle the debt for less than the full amount? My ex wife did that on a lot of her accounts thinking she would be free and save some money until she got a big tax bill. Uncle Sam will come knocking, collections on unpaid taxes are being escalated to help the federal budget. Best of luck.

Message 9 of 20
Frequent Contributor

Re: 1099-C issues and charge off,Please help!!

Wow,what a mess,thank you all for your inputs.,but i didn't know nothing about that 1099C until yesterday that i finally got it in the mail after atempting to settle the account i was told that i couldn't that the debt had been estinguish.I didn't know what they saying by that until i got a letter in the mail about it.They say it was given on 1/29/2011,by then i already had filed,now ya'll got me worry.What should i do in this case? Thanks in advance.

Message 10 of 20