Chargeoff - IRS 1099 income

[warrior1]

What is the name of your state? NJ

How to handle when a credit card company send you IRS Form 1099 with charge off amount that need to be treated as income. Can I deduct any amount that I have paid to settle that debt with Law firm or CA.

[Ladynred]

No, the 1099-C "cancellation of debt income" is also sent to the IRS, so you will have to claim it as income UNLESS you can prove that you were/are insolvent at the time the debt was 'forgiven' - then you will not have to claim it as income.

[caliber]

If you can prove you are receiving your own value back to you(which is the 1099-C), then you really don't have income. Yet another ploy by the credit card company to make the appearance of risk/loss.

Ladynred
Senior Member Join Date: Feb 2002
Location: Nashville,TN
Posts: 9,326


No, the 1099-C "cancellation of debt income" is also sent to the IRS, so you will have to claim it as income UNLESS you can prove that you were/are insolvent at the time the debt was 'forgiven' - then you will not have to claim it as income.
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[warrior1]

Does that mean the following for example: I was delinquent for $10000 to Citi Visa. Now citi visa is sending me 1099-c for $10000. Since I am not declaring bankruptcy, I have to 1. claim $10,000 as income on my tax return, 2. I just paid 8,000 to the plaintiff (citibank law firm) to settle it 3. I got slammed with $18,000 liability or 4. I can deduct $8000 from the $10000 income for tax purposes and actually pay tax on $2000 only ? I hope I am able to clarify my question.

[caliber]

The 1099-c, in my opinion is bogus. I believe one could challenge that and prevail. But based on your example, $2,000 is the amount that would be reflected on the 1099-c. After all, you settled at $8,000. What did you get the law firm to report to the credit bureau at settlement? If it's the typical settled-less than than full, then it's derogatory. Looks like you bit at the 80% offer of settlement. A balance that large could have been negotiated even further, perhaps to 10%. Ever wonder why they are so eager to settle with you a small percentages? They really have little risk, if any. It's all found money to them.

need more clarification

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Does that mean the following for example: I was delinquent for $10000 to Citi Visa. Now citi visa is sending me 1099-c for $10000. Since I am not declaring bankruptcy, I have to 1. claim $10,000 as income on my tax return, 2. I just paid 8,000 to the plaintiff (citibank law firm) to settle it 3. I got slammed with $18,000 liability or 4. I can deduct $8000 from the $10000 income for tax purposes and actually pay tax on $2000 only ?

[stevek3]

Originally Posted by caliber

The 1099-c, in my opinion is bogus. I believe one could challenge that and prevail. But based on your example, $2,000 is the amount that would be reflected on the 1099-c. After all, you settled at $8,000. What did you get the law firm to report to the credit bureau at settlement? If it's the typical settled-less than than full, then it's derogatory. Looks like you bit at the 80% offer of settlement. A balance that large could have been negotiated even further, perhaps to 10%. Ever wonder why they are so eager to settle with you a small percentages? They really have little risk, if any. It's all found money to them.

It's always informative to have a representative from the Militia of Montana setting people straight about the U.S. tax code.

[caliber]

Pay(if you want) on $2000. Or formally dispute lawfully. Anything more doesn't square with what you settled for. You can prove the $8000 was paid by you per your example, yes?

[Ladynred]

WERE you insolvent (owed more than assets you own) when the 10K 1099-C was issued ??? If you were/are, then you will have to fill out that form with the IRS to claim insolvency and then you will not have to claim ANY of it on your tax return.