• This site uses cookies. By continuing to use this site, you are agreeing to our use of cookies. Learn more.
  • FreeAdvice has a new Terms of Service and Privacy Policy, effective May 25, 2018.
    By continuing to use this site, you are consenting to our Terms of Service and use of cookies.

Cancellation on old debt -- IRS notice

#1
What is the name of your state (only U.S. law)? Virginia

Backstory summary - Job loss led to unpaid credit card debt. Last payment received by creditor was in 2010. I don't know how to prove this as all reports of this debt have fallen off credit reports. I used to keep old copies of credit reports, but I have moved a number of times in the past few years and potentially stupidly got rid of some stuff.

I just got a notification from the IRS that I did not report a cancellation of debt on my 2016 taxes, whereas Discover reported it to the IRS. As such, they're suggesting I owe them money, plus penalties and interest. Approx 2k.

My questions are....

  • Is the last payment date of 2010 (actually might've even been 2008 or 2009) relevant, and if so what could I do to help prove that?
  • SOL for credit card debt is 3 years, correct? So how could they have reported a cancellation of debt past this time period?
  • If I was never sent a 1099, can they still report it as cancellation of debt?
  • If I was never sent a 1099, but the CoD is 'valid', how can I be responsible for non payment penalties and interest when I had no idea about it in the first place?

Any advice?
 


LdiJ

Senior Member
#2
What is the name of your state (only U.S. law)? Virginia

Backstory summary - Job loss led to unpaid credit card debt. Last payment received by creditor was in 2010. I don't know how to prove this as all reports of this debt have fallen off credit reports. I used to keep old copies of credit reports, but I have moved a number of times in the past few years and potentially stupidly got rid of some stuff.

I just got a notification from the IRS that I did not report a cancellation of debt on my 2016 taxes, whereas Discover reported it to the IRS. As such, they're suggesting I owe them money, plus penalties and interest. Approx 2k.

My questions are....

  • Is the last payment date of 2010 (actually might've even been 2008 or 2009) relevant, and if so what could I do to help prove that?
  • SOL for credit card debt is 3 years, correct? So how could they have reported a cancellation of debt past this time period?
  • If I was never sent a 1099, can they still report it as cancellation of debt?
  • If I was never sent a 1099, but the CoD is 'valid', how can I be responsible for non payment penalties and interest when I had no idea about it in the first place?

Any advice?

The last payment date really doesn't matter for tax purposes. They clearly reported the cancellation of debt income for 2016 so that is the year you have to deal with. Most likely you did not get your copy of the 1099-C because they did not have a current address for you.

Go see a tax professional and let them see if you can be considered to have been insolvent right before the debt was cancelled, and therefore can exclude it from income.
 
#3
The last payment date really doesn't matter for tax purposes. They clearly reported the cancellation of debt income for 2016 so that is the year you have to deal with. Most likely you did not get your copy of the 1099-C because they did not have a current address for you.

Go see a tax professional and let them see if you can be considered to have been insolvent right before the debt was cancelled, and therefore can exclude it from income.
By tax professional, I trust you don't just mean someone at the local H&R block office, correct?

Also, maybe I'm not the smartest guy in the world (I definitely am not) but I've googled insolvency and I'm not quite sure I understand the definition still. Good reference for layman terms?
 
#4
By tax professional, I trust you don't just mean someone at the local H&R block office, correct?
Some people at Block would be knowledgeable enough to deal with this, though personally I would suggest going to a person in business all year around and that does not hire on a whole bunch of people temporarily to deal with the filing season rush as some large tax prep firms do.

Also, maybe I'm not the smartest guy in the world (I definitely am not) but I've googled insolvency and I'm not quite sure I understand the definition still. Good reference for layman terms?
Insolvent means your debts exceed the fair market value of your assets. If you were insolvent immediately before the discharge of debt, which means including in your debt the obligation that got discharged, then some or all of the debt may be excluded from income for federal income tax purposes.
 

LdiJ

Senior Member
#5
Also, google "net worth statement". Templates for that would help you walk through whether or not you were insolvent with that debt included in your debts. A negative net worth indicates insolvency by the amount of the negative net worth.

With bigger assets (house, car etc) the asset at fair market value goes on the asset side, and the mortgage or credit balance on the vehicle goes on the debt side.