Trying to understand 1099-C

[Evo_Shandor]

I received a 1099-C this year stating I had debt cancelled in August 2013. This was the first I heard of this. After doing some research, I believe this occurred because the debt was over 36 months old with little to no collection activity in the previous 12 months and I had never paid on it.

I"ve read that receiving a 1099-C does not necessarily mean that I'm no longer responsible to re-pay the debt. How do I find this out? My TransUnion report shows "Date closed" of Aug 2013, but the pay status says it's "in collection." 

How can it still be in collection if the account is closed and the debt is cancelled? If I do still have to pay this back, then why did I have to pay taxes on it as income for 2013?

[Creditaddict]

I thought if they send 1099 they can't collect

[PowerMan572]

I just went through this. I did NOT include two 1099-C forms on my 2011 taxes and the IRS caught it. 

Whatever amount you see on that 1099-C form, you need to include that on your taxes as income. For instance, say you had a credit card with $10,000 balance. You settle with the credit card company and pay only $6,000. You will get a 1099-C from the creditor and the IRS considers the $4k that was written off as income.

HOWEVER, from June 2013 to December 2013 I was fighting with the IRS saying that I do not owe them any additional money and that my cancellation of debt should NOT be considered as income. Guess what, I WON! You must fill out this specific form (if you really need it, please let me know. I can pull up my taxes to get the form # if needed.) and then you have to prove to the IRS that your assets were lower then your debt (I believe it's called "grievance". You need to explain why you were in grievance.)

I finally got the letter in December that I don't owe any additional money to the IRS. It was a long battle, but it saved me about $3,500. 

[RobertEG]

The debt was not cancelled simply due to its age or lack of activity in attempting to collect.

The creditor, by sending both you and the IRS the 1099c, has decided to cancel the debt.

There are admittedly some rare accounting practices wherein a creditor feels obligaed to send a 1099c, but does not consider that to be a formal cancellation of the debt.

However, unless they assert as such, I would assume it is a standard cancellation.

If the OC cancelled the debt, they should have notified their debt collector that there is no longer any debt upon which to collect, requiring the debt collector to close their collection and update the balance under their collection to $0.

I would send a direct dispute to the debt collector, and include a copy of the 1099c as evidence of cancellation of t he debt.

They are then required to conduct a reasonable investigation, which would inherently require them to check with the creditor.

That will ferret out any issues of creditor assertion of non-cancellation.

[Evo_Shandor]

Thank you, Robert. It does still show that I still have a large balance even though the account is closed, so something is definitely amiss. Any suggestions on what the wording to the creditor should be?