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.
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.
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).
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.
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.