1099-c

[davew128]

The defendant can argue that a 1099C does mean the debt is forgiven while the plantiff is free to argue that the 1099C was sent just to comply with IRS regs and they had no intention of forgiving the debt.

A 1099C is not issued unless the debt is forgiven. There is no IRS regulation on the matter, there is simply the law.

 

[davew128]

If they are double dipping, I want MY government to know about it.

It's not double dipping. If they do in fact collect the money after writing it off, it becomes income.

 

[bigun]

A 1099C is not issued unless the debt is forgiven.

This just isn't correct. A least one federal judge, an Az. appelate court and various state legislatures have taken the totally opposite stance.
The IRS does issue guidelines on what triggers the issuance of a 1099C.

 

[davew128]

This just isn't correct. A least one federal judge, an Az. appelate court and various state legislatures have taken the totally opposite stance.

Good for them. When they have the authority to rule on federal tax matters, I'll care about their opinion. In the meantime, they're wrong. That's a fact.

The IRS does issue guidelines on what triggers the issuance of a 1099C.

Indeed you might want to read page 3 of the instructions for the 1099-C. http://www.irs.gov/pub/irs-pdf/i1099ac.pdf In fact I would focus your eyes on item #7.

In other words, if the state is saying they didn't cancel the debt, then the issuance of the 1099-C was improper.

 

[bigun]

Good for them. When they have the authority to rule on federal tax matters, I'll care about their opinion. In the meantime, they're wrong. That's a fact.

Indeed you might want to read page 3 of the instructions for the 1099-C. http://www.irs.gov/pub/irs-pdf/i1099ac.pdf In fact I would focus your eyes on item #7.

In other words, if the state is saying they didn't cancel the debt, then the issuance of the 1099-C was improper.

You're mistaken. As I posted previously, state law is all over the place.

Here's a Pa. Case.

"in re zilka" - Google Scholar

For several reasons set forth below, the Court must reject both of the Debtor's foregoing arguments.

First, "[t]he Internal Revenue Service[, which regulatory agency is the one that promulgated 26 C.F.R. § 1.6050P-1, and whose interpretation of the same is thus entitled to great deference, see Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 843-845, 104 S.Ct. 2778, 2782-2783, 81 L.Ed.2d 694 (U.S.1984),] does not view a Form 1099-C as an admission by the creditor that it has discharged the debt and can no longer pursue collection [thereon]." I.R.S. Info. Ltr.XXXX-XXXX, 2005 WL 3561135 (Dec. 30, 689*689 2005) (next-to-last paragraph, construing 26 C.F.R. § 1.6050P-1(a)); see also I.R.S. Info. Ltr.XXXX-XXXX, 2005 WL 3561136 (Dec. 30, 2005) (Q & A #5, 26 U.S.C. "Section 6050P and the regulations do not prohibit collection activity after a creditor reports by filing a Form 1099-C"); Sims v. Commissioner, T.C. Summ.Op.2002-76, 2002 WL 1825373 at * 2 (U.S.Tax.Ct.2002) (evidence that Form 1099-C was issued does not establish that petitioner's debt was ever discharged); Debt Buyers' Association v. Snow, 481 F.Supp.2d 1, 13-14 (D.D.C.2006) (the status of a debt described on a Form 1099-C is not falsely represented if, when providing such Form 1099-C to a debtor, a creditor attaches thereto a notice that such creditor plans to continue debt collection activities with respect to such described debt). Therefore, regardless of the reason why Bayer issued the four Forms 1099-C, Bayer's issuance of such forms constitutes neither an admission by Bayer that it, nor consequently demonstrates that Bayer, discharged the Debtor from further liability on any of Bayer's four claims.

Second, that a Form 1099-C does not constitute an admission by the creditor that it has discharged the debt and can no longer pursue collection thereon is consistent with the fact that Forms 1099-C are sometimes filed and issued in error, ultimately prompting the filing and issuance of corrected Forms 1099-C. In the instant matter, Bayer obviously filed and issued the four Forms 1099-C regarding the Debtor in response to its charging off of the outstanding indebtedness of the four loans to the Debtor that constitute Bayer's Claims 1-4; such is evidenced by the fact that the date of such charge off, as set forth in the Account Statements, coincides with the date that the Forms 1099-C were issued. Such charge off of indebtedness, however, and as set forth above, neither is the legal equivalent of, nor constitutes, the discharge of such indebtedness; therefore, Bayer filed and issued the four Forms 1099-C regarding the Debtor in error, which error can be corrected by the filing and issuance of corrected Forms 1099-C. That Forms 1099-C can be corrected would be impossible were it the case that the filing and issuance of a Form 1099-C constitutes an admission by the creditor that it has discharged the debt and can no longer pursue collection thereon. Thus, Bayer's issuance of the Forms 1099-C does not serve to demonstrate that Bayer discharged the Debtor from further liability on any of Bayer's four claims.

Third, Bayer's issuance of the Forms 1099-C did not itself operate to legally discharge the Debtor from further liability on each of Bayer's four claims. That is because Forms 1099-C, as a matter of law, do not themselves operate to legally discharge debtors from liability on those claims that are described in such Forms 1099-C. See Owens v. Commissioner, 67 Fed.Appx 253, ___, 2003 WL 21196200 at *3 (5th Cir.2003) (issuance and filing of Form 1099-C does not constitute actual cancellation of the loan); Leonard v. Old National Bank Corp., 837 N.E.2d 543, 545-546 (Ind.Ct.App.2005) (filing a Form 1099-C is merely an informational filing with the I.R.S., done to report an event that has already happened, and thus does not operate to cancel debt itself); Sims, T.C. Summ.Op.2002-76, 2002 WL 1825373 at *2 (Form 1099-C does not establish that petitioner's debt was ever discharged, which necessarily means that such form did not operate to cancel such debt); Debt Buyers' Association, 481 F.Supp.2d at 13-14 (a creditor can attach to a Form 1099-C a notice that such creditor plans to continue debt collection activities with respect to a debt described in such Form 1099-C, which necessarily means that such form did not operate to cancel such debt).

690*690 Fourth, that a Form 1099-C does not itself operate to legally discharge a debtor from liability on the claim(s) that are described in such Form 1099-C is also compelled by an application to such form of 13 Pa.C.S.A. § 3604(a),[2] Pennsylvania's Uniform Commercial Code provision regarding the methods of discharging an instrument such as, for instance, a promissory note (like those given by the Debtor, or for which the Debtor is liable thereon). The Court so holds because (a) the sole purpose behind filing and issuing a Form 1099-C is to satisfy an I.R.S. information reporting requirement regarding an event that has already happened, see Leonard, 837 N.E.2d at 545-546, (b) such sole purpose is a far cry from a purpose of discharging the obligation that is the subject of the Form 1099-C, which purpose/intent must accompany any voluntary act that would operate to discharge such obligation under 13 Pa.C.S.A. § 3604(a)(1), see 2 James J. White & Robert S. Summers, Uniform Commercial Code § 16-13 at 147 (5th ed. 2008) ("Section 3-604 makes it clear that surrender of an instrument[, for instance,] acts as a discharge only if the instrument is surrendered with the intention of discharging it"), and (c) a Form 1099-C, as just set forth, only serves to report (strictly for tax purposes) information regarding an event that has already happened, which reporting of information cannot possibly be stretched or strained to also constitute a present contractual agreement not to sue, or a present contractual renunciation of rights against, a debtor, as is called for under 13 Pa.C.S.A. § 3604(a)(2).[3]

Fifth, the Court is aware of several cases that hold that, if a creditor issues a Form 1099-C to a debtor who then relies on the same and pays income tax as a result thereof (income tax on income due to discharge of indebtedness), then such creditor cannot enforce the debt described in such Form 1099-C unless such creditor issues a corrected Form 1099-C reporting that no discharge of debt actually occurred. See In re Crosby, 261 B.R. 470, 474-475 & 477 (Bankr.D.Kan.2001); Franklin Credit, 812 A.2d at 62-63. These courts seem to justify their decisions on the basis that, because the debtor has been prejudiced by the issuance of the original Form 1099-C, it would be inequitable to permit enforcement of the debt in 691*691 question until the debtor obtains corresponding income tax relief by way of the receipt of a corrected Form 1099-C. See Crosby, 261 B.R. at 474-475 & 477; Franklin Credit, 812 A.2d at 62-63. In the instant matter, the Court deals with such "tax relief" issue simply enough; the Court will, as part of its accompanying order, and as an exercise of its discretion, direct that Bayer forthwith file with the I.R.S. and issue to the Debtor four corrected Forms 1099-C that pertain to each of its four respective claims that are to be allowed herein.[4] By virtue of Bayer's issuance of corrected Forms 1099-C, the Debtor will have the requisite documentation that he needs to obtain the income tax relief[5] that so concerned the courts in Crosby and Franklin Credit.[6] The Court is aware that the Debtor also advances another argument as to why it would be inequitable to allow Bayer to enforce its four claims, namely that Bayer has already benefitted by the income tax deductions that it would have taken as a result of discharging the debts that constitute its four claims. Such argument is unavailing, however, because (a) Bayer, as set forth above, did not, by charging off the debts that constitute its four claims, discharge (i.e., forgive) such debts, which means that Bayer also did not necessarily take any tax deductions with respect to such claims, and (b) even if, and to the extent that, Bayer has taken such prior income tax deductions, the same would then automatically be reversed if, and when, Bayer receives any recovery from the Debtor's bankruptcy estate regarding its four claims (i.e., Bayer's recovery by way of continued collection efforts) — such would be the case because, upon receipt of such recovery, the same would constitute fully taxable income to Bayer.

Here a Ct. case that says the issuance of a 1099C does mean the debt is forgiven.

http://www.jud.state.ct.us/external/supapp/Cases/AROap/AP73/73ap59.pdf

Not trying to start a thread to nowhere but, the OP in this thread needs to be aware of the argument the plantiff is likely going to use.

 

[davew128]

Hey Bigun, when you get something that is onpoint with federal tax law, I'll pay attention. In the meantime, stop embarassing yourself. Did you actually bother to read the instructions to a 1099-C? If the debt wasn't cancelled, the form should not be issued. THAT'S A MATTER OF FEDERAL TAX LAW NOT SUBJECT TO THE JURISDICTION OF A STATE COURT.

You might want to look up the supremacy clause of the constitution while you're at it.

 

[bigun]

Hey Bigun, when you get something that is onpoint with federal tax law, I'll pay attention. In the meantime, stop embarassing yourself. Did you actually bother to read the instructions to a 1099-C? If the debt wasn't cancelled, the form should not be issued. THAT'S A MATTER OF FEDERAL TAX LAW NOT SUBJECT TO THE JURISDICTION OF A STATE COURT.

You might want to look up the supremacy clause of the constitution while you're at it.

You might want to inform the Az. appelate court and the Pa. legislature that they're wrong.They seem to feel they've jurisdiction.
While you're at it, the federal judge in DBA vs Snow:

Plaintiff insists that issuance of 1099-C Forms will prohibit Debt Buyers from pursuing debt collection and enforcement activities after such forms are issued, which may be before a state’s statute of limitations for the collection of such debts has expired. However, as stated above, there is no reason that a Debt Buyer cannot include with its statement to an affected debtor an instructional guideline explaining the reasons for the issuance of the 1099-C (for example, because 36 months have transpired without debt collection activity), a disclaimer that a 1099-C must be issued as a result of an identifiable event regardless of whether an actual discharge of indebtedness has occurred on or before the date of such an event, and a notice to the debtor that a Debt Buyer plans to continue debt collection activities….Plaintiff can only cite one case, notably from a bankruptcy court in Kansas, in which the prior issuance (without any disclaimer) of a Form 1099-C rendered a debt effectively discharged and unenforceable….this Court does not find persuasive the evidence presented by Plaintiff regarding the limitations Treas. Reg. § 1.6050P-2(e) would place on Debt Buyers’ ability to collect debts in accord with state statute of limitations”.

There is theory and then, there is reality and the reality is, courts at both the federal and state level have reached a far different interpetation of the tax code than the one you stubbornly cling too.

 

[despritfreya]

I apologize for the length of this post but I wanted to make sure both of you understand the state of the law as it relates to Arizona. . .

While bigun is partially correct in his assessment of Arizona law, he is citing the wrong case for the proposition. The case he cites, Debt Buyers' Ass'n. v. Snow, 481 F.Supp.2d 1 (D.D.C., 2006), has very little to do with the issues raised in this thread. DBA, which is an entity that acts on behalf of its members and holds “bad paper” for those members, sued the Secretary of the Treasuring and the Commissioner of the IRS asking that they be enjoined from enforcing the regs that require the issuance of a 1099c. The holding of the case contains a good explanation of the Federal Regulations and that is why it is cited in cases dealing with the issues raised by OP.

In Arizona there is a presumption that the issuance of a 1099c eliminates the debt. That presumption can be defeated and this is based upon State law therefore it has no direct impact on any other state. The following is a Court of Appeals decision out of Divisiont 1. It is not "binding" in any other district.

Amtrust Bank v. Fossett, 224 P.3d 935 (Ariz. App., 2009) (as quoted from the decision)

“Years after the borrowers in this case defaulted on a loan, the lender issued a federal tax Form 1099-C indicating the debt was cancelled. The lender then sued the borrowers on the obligation. On summary judgment, the borrowers did not dispute the default, but argued they were not liable because the lender had cancelled the debt. We hold that while issuance of a Form 1099-C may be prima facie evidence of cancellation of a debt, the lender may rebut that evidence by showing that when it issued the form it did not intend to forgive the obligation.. . .

Generally accepted accounting principles require that when a retail loan is past due for a specific period of time, the lender must reclassify the debt as a loss and write it off. See Kelly v. Wolpoff & Abramson, L.L.P., 634 F.Supp.2d 1202, 1209 (D.Colo.2008). In that circumstance a lender may or may not decide to cease trying to collect on the debt. . . (Citing to DBA v Snow)Under federal law, a lender that "discharges" a debt must report the discharge to the "IRS". . . A lender that files a Form 1099-C with the IRS also must furnish the same information to the borrower. . . In this case, Amtrust provided notice that it had "discharged" debt by sending the Fossetts a copy of the Form 1099-C it filed with the IRS.

At issue in the Fossetts' summary judgment motion was whether the Form 1099-C constituted a "discharge" of the Fossetts' debt for purposes of Arizona law. Whether a lender has discharged a debt signified by a written instrument is governed in this state by A.R.S. § 47-3604(A) (2005), which provides in relevant part that a discharge may occur

1. By an intentional voluntary act, such as surrender of the instrument to the party, destruction, mutilation or cancellation of the instrument, cancellation or striking out of the party's signature or the addition of words to the instrument indicating discharge; or
2. By agreeing not to sue or otherwise renouncing rights against the party by a signed writing.

The Fossetts argued in their summary judgment motion that by issuing the Form 1099-C, Amtrust "agree[ed] not to sue or otherwise renounce[ed]" its rights against them within the meaning of A.R.S. § 47-3604(A)(2). In response, Amtrust relied on an affidavit of its collection manager stating that by issuing the Form 1099-C, Amtrust did not intend to renounce, forgive or cancel the debt. Amtrust argued that although Form 1099-C is titled "Cancellation of Debt," pursuant to federal regulation, a lender may issue the form even though it has not actually cancelled the debt. See 26 C.F.R. § 1.6050P-1(a)(1) (2009). . .

We agree with the Fossetts that Amtrust's issuance of the Form 1099-C is prima facie evidence that it had discharged their debt within the meaning of Arizona law. In responding to the Fossetts' motion, however, Amtrust submitted evidence sufficient to create a genuine issue of material fact about whether it intended to cancel the debt and whether, as a consequence, the debt was discharged.

Conclusion: For the reasons set forth above, we affirm the superior court's denial of the Fossetts' motion for summary judgment but reverse the summary judgment it entered in favor of Amtrust, and remand for further proceedings consistent with this Opinion.”

_____________________________

So, as you can see, in Arizona (at least in Division 1) the issuing of a 1099c eliminates the debt unless the one attempting to collect can show that such was not the intention. One could imaging if the lender issues the 1099c and then sells the paper, it did not intend to eliminate the debt but, that is a question of fact that must be established by the one attempting to enforce collections.

Des.

 

[davew128]

You might want to inform the Az. appelate court and the Pa. legislature that they're wrong.They seem to feel they've jurisdiction.....
There is theory and then, there is reality and the reality is, courts at both the federal and state level have reached a far different interpetation of the tax code than the one you stubbornly cling too.

Ok, I'm going to stop you right there. You don't get it. You never did.

First off, matters of federal taxation are not litigated in state court. EVER. Something about jurisdiction and all that.

Secondly, did you actually read the case text you post? Really? Did you apply the court rulings to the issue at hand and understand it? Umm, clearly you didn't. What did the courts decide? Oh, that the debt wasn't cancelled. Please tell me again how that is a matter of federal tax law. Don't bother, I'll make it easy: It's not. It was ALWAYS A STATE LAW MATTER.

So that leads to the issuance of the 1099-C and potential recognition of COD income by the debtor. But wait, a state court has just ruled that the debt wasn't cancelled under state law. That means under federal tax law......



Wait for it......


The 1099-C should never been issued and the debtor doesn't need to report COD income on their tax return.


Geez, I can't believe I had to go through this exercise to connect the dots for people here.

 

[bigun]

Thank you Des.

 

[cosine]

The 1099-C should never been issued and the debtor doesn't need to report COD income on their tax return.

So they made a mistake that cost someone a lot of money, and as a result, they should pay for their mistake. That would include the sum the 1099-C recipient paid to the IRS for the supposed income their received that paid the original debt, and their legal costs dealing with this mistake.

"It was an innocent mistake" is a too-often-heard excuse.

 

[davew128]

So they made a mistake that cost someone a lot of money, and as a result, they should pay for their mistake. That would include the sum the 1099-C recipient paid to the IRS for the supposed income their received that paid the original debt, and their legal costs dealing with this mistake.

There are at least three separate ways of dealing with a tax return and getting the tax back on the non-income, none of which require filing a lawsuit.