05-01-2013 10:28 AM - edited 05-01-2013 10:59 AM
Hi All - figured I'd throw my question out there before I do lots of research
I am probably on the wrong website but I figured someone might have some experience here
Last year, around this time - AFTER I HAD FILED MY 2011 TAXES - I recieved a 1099-C from Onyx Acceptance Corp for an auto loan charge off in the amount of $4558. I - still learning - did a bit of googling and disregarded it. I figured that since it was still on my credit report, and the OC (Capital One) still wanted their money, and hadn't actually forgiven me of the debt that I wouldn't have to worry about refiling my taxes.
Fast forward to this year... 2 weeks ago, I settled with Capital One, paying 30% of the $4558. They sent me a letter of settlement and explained I would recieve a 1099C for the $3190 remaining. Fair enough - I understand this.
So why pray tell did I just get a notice from the IRS with proposed changes to my 2011 tax return, stating I didn't file the 1099-C from Onyx and I owe them $1200?!
I don't even know what to do The good news is - one of the many lessons I learned in the past few years is not to ignore this notice.
If anyone has any advice on where to begin, that'd be greatly appreciated. I can file a response with the IRS by the end of May whether I agree or disagree with their proposal. Obviously I disagree - I mean, how many different people can "forgive me" of the same debt?!
05-01-2013 10:36 AM - edited 05-01-2013 10:49 AM
Also - after more googling - Onyx was acquired by Capital One Financial, so I think they're considered the same. In any case, how is it fair that they file a 1099C and then proceeded to take a settlement.
Shouldn't Capital One have shown a $0 balance back in January on my credit report if they "forgave me" of the debt and I had to pay the taxes on it?
WHAT CAN I DO?
05-01-2013 11:04 AM
The debt collector was presumably the authorized collection agent of the OC, so their sending of a form 1099c is binding on the OC.
A 1099c cancels the debt. Thus, if the 1099c referenced the entire debt, it then no longer existed as of the date you received their notification of such.
Thus, the IRS properly considered it "income" upon which you incurred a tax obligation.
It thus appears that the settlement subsequently accepted by the OC was improper, as you had no debt with them upon which they had authority to receive a penny.
It thus appears that the second, not first, 1099c is inaccurate, as they can't cncel non-existent debt.
From my understanding of the scenario, you thus are apparently entitled to a full refund of the settlement you made to the OC.
As for the tax obligation, I would simply put all the facts into an amended return, paying the tax on the originally cancelled debt, and explaining the facts to the IRS, including your opinion that the second 1099c was in error. The IRS will figure it out. Just be forthcomining with all the facts.
05-01-2013 11:11 AM - edited 05-01-2013 11:15 AM
So I should call the OC and ask for a refund on my settlement?
How will it then show on my credit report? Cause it's been showing for the last 6 months (after the date on the 1099C) as an outstanding balance of $4558 and its in the way of our mortgage goals. That's the only reason I settled in the first place.
05-01-2013 12:15 PM
Just got off the phone with Capital One and they refuse to retract the original 1099C that was issued back in December, AND they're gonna issue ANOTHER one for the difference of the settled debt. HOW IS IT LEGAL to take $1500 from me to settle a $4500 debt and then make me pay taxes on $7500 of "income" ?!?!?!?
05-01-2013 03:51 PM
05-01-2013 06:20 PM
Appeal the notice you got from the IRS. Send them the original 1099-C, the new one you get from Capital One, and the settlement letter from Capital One.
05-01-2013 06:27 PM
Also, if the IRS doesn't abate the adjustments and you live in a state with an income tax, make sure you amend your state tax return as well. The IRS sends adjustment information to state taxing agencies and it may take a couple of years for them to adjust your return resulting in even more interest and/or penalties.