So, I went to check the mail today and found some mail from the IRS informing me that I owe additional taxes for the year. I have payed all my taxes in full and didnt understand what this could of been from. After looking through all the papers.. It seems that I have a cancellation of debt in the amount close to what myfico says is delinquent. The name on the cancellation of debt is the same bank and seems legit. I am however confused because it says the sales date is 12-31-2008. The IRS is asking for taxes to be payed on this amount.
My question is:
a) Is this normal for a cancellation of debt to be taxed and pay for it.
b) Should I pay this tax on this asap.
It seems looking at my score, which is a 642, This has been on my account for about 10 years now. The balance I show is 3,462 on my credit report from that which was opened when i was in high school in 97.
Im also curious if this is the delinquent account that I am paying taxes on if I there is some way to get this off of my credit now that it is cancelled. If there is a way, what do i need to do.
Thanks in advance for those that can help me out with this
Yes, debts that are cancelled (creditor writes them off) are considered taxable income. The creditor will report to the IRS the amount they charged off. if the creditor sells the account to a collector, they don't report that to the IRS. but, if the account is considered uncollectible, and no collector will take it, they charge it off.
the amount that was charged off on my CapOne account back in 2003 started my downward spiral in credit scores. I had to set up a payment plan with the IRS, (which, by the way, was not quite as initmaditing as I feared), which caused me to start defaulting on other credit cards.
so, yes, they can report that charge off as income to the IRS, and yes, you do have to pay the IRS the tax on that "income". You may want to check that dates of charge off and date of last activity to see if it should have fallen off your credit report due to your states SOL. You don't want to have an IRS lien on your credit report.
I went ahead and sent the payment in full to the IRS.
Now that they have this payment I would assume that I dont really owe anymore to this account. Does this mean that the account should fall off of my credit soon or do I need to do something to have it removed from my credit.
I was really upset to see this at first but, do you think this is a positive thing in regards to my credit and will i notice my score go up or down in the near future do to this account in some degree being satisfied?
It should fall off of your report 7 years from your date of first delinquency. Do you have a report from a CRA to look at?