Received 1099-C for Discharged Debt

[yoyoma51]

My wife and I filed Chapter 7 in Nov. '07 (discharged Feb. '08) due to a failed business. Some of the debt was a credit card with BOA ($25k), personally secured by us.

In 8/2009 we received a 1099-C from BOA for the canceled debt. From what I can determine, a 1099-C is required if discharged debt was from a business.

Obviously, the business has closed and the assets were sold to our business partners. If it matters, it was an S-Corp.

Do we need to worry about this? We filed a final return for the business in '08 (for the '07 tax year).

We also want to make sure the IRS doesn't go after our former business partners. They did not personally guarantee any of the debt we discharged.

Opinions? Do we just forget about it?

[Widdle]

My wife and I filed Chapter 7 in Nov. '07 (discharged Feb. '08) due to a failed business. Some of the debt was a credit card with BOA ($25k), personally secured by us.

In 8/2009 we received a 1099-C from BOA for the canceled debt. From what I can determine, a 1099-C is required if discharged debt was from a business.

Obviously, the business has closed and the assets were sold to our business partners. If it matters, it was an S-Corp.

Do we need to worry about this? We filed a final return for the business in '08 (for the '07 tax year).

We also want to make sure the IRS doesn't go after our former business partners. They did not personally guarantee any of the debt we discharged.

Opinions? Do we just forget about it?

Is the 1099-C made out to you...or the business?

And, did you list BoA on your schedules?

If you did, it sounds like a violation of stay to me.

Maybe a tax guru can step in on this.

[Dst1]

Whether or not a 1099-C is filed is purely an internal accounting matter at the creditor.

It has nothing to do whether it is business or personal. If the creditor forgives or cancels the loan they must file a 1099-C and you have to report it as income. If the creditor agrees the accept an amount less than the face value of the loan as "full satisfaction" of the loan then a 1099-C does not have to be filed. Sometimes creditors will file a 1099-C anyway but they don't have to.

On the 1099-C there is a box that states the date the debt was canceled. If the date in that box is before the date you filed for BK that would explain why you getting the 1099-C and it would not violate the stay. If the date the debt was canceled is after the date you filed for BK, I would assume that does violate the stay.

But all of this assumes the business was properly closed down during your filing for personal BK.

[goneunder]

Is it from FIA card services? I am getting some seriously angry threats from them on my small business line of credit. I am about four months behind and they blow all my phones up daily so I would not put it past them to do something slimey.

[yoyoma51]

The 1099-C is made out to me personally, not the business. It is from BOA's Business Lending Division, however.

Yes, BOA was listed on our schedules.

The date the debt was canceled was the same date as our discharge, 2/29/08.

[Dst1]

The 1099-C is made out to me personally, not the business. It is from BOA's Business Lending Division, however.

Yes, BOA was listed on our schedules.

The date the debt was canceled was the same date as our discharge, 2/29/08.

Clerical error would seem the mostly likely explanation; I would guess some type of coding problem in accounting.

The other possibility is that your business was never properly closed down in which case you have a problem.

I would call them and explain to them that you think this is an error and see what they say.

[whipster1]

They can give you a 1099 but you are insolvent so no tax implications.

[LJoutWest]

Keep a copy of your discharge and schedule. I understand that if the IRS comes looking for more taxes you can show that to them and the matter will be closed but don't quote me on that.

[Flamingo]

To the OP - call the attorney who handled your BK and advise. If that debt was included in your filing and discharged you should not have received a 1099 - it's probably an error or mistake. Oour attorney advised us after our discharge if we received anything from former creditors to contact him right away.

[HHM]

Although you probably should not have received a 1099, it was merely an accounting issue with the bank.

This is really no big deal. When you do your taxes, File IRS From 982 and check box 1(a) ("discharge of indebtedness in a Title 11 case").

[Widdle]

Although you probably should not have received a 1099, it was merely an accounting issue with the bank.

This is really on big deal. When you do your taxes, File IRS From 982 and check box 1(a) ("discharge of indebtedness in a Title 11 case").

If this is dated 2009, OP may have a problem, however, if it states 2008 then maybe OP can just amend his taxes for 2008 to include the above form.

If it is dated 2009, Shouldn't OP should send it back and request it to be corrected and/or voided per the Title 11 case?

I'm only inquiring because the IRS likes to have everything "match" and the date discrepancy could be a future hassle for OP.

[yoyoma51]

The 1099-C is states "DUPLICATE AS OF 8/10/09"

Never received an original, so not sure about the "duplicate" thing.

It is for to the calendar year 2008. Does it pay to amend my 2008 taxes for this? It is not like I'm going to have to pay in or get any additional return.

Seems like it would a waste of time for the IRS to care?

[justbroke]

Seems like it would a waste of time for the IRS to care?

It's not the People at the IRS you need to worry about. It's the computers that run various audit programs. Since the Bank provided this to the IRS, you may be assessed taxes on this. You need to heed what HHM wrote and file a 1040-X for 2008 and include Form 982.

I once assumed that a dumb Realtor was going to file a corrected 1099 and never did. The IRS assessed taxes back from 2005 which should have only been $1,500, but was over $4,000 when I filed for bankruptcy in 2008. I too "ignored" it... then started getting nasty letters from the IRS. I even called the IRS and told them it was wrong (1099 from the sale of my home) and they apparently didn't care until they received the corrected 1099 from the Realtor! (THe corrected 1099 read "$0.00".)

[Dst1]

It's not the People at the IRS you need to worry about. It's the computers that run various audit programs. Since the Bank provided this to the IRS, you may be assessed taxes on this. You need to heed what HHM wrote and file a 1040-X for 2008 and include Form 982.

I disagree. With this error it's better to solve it at the source. While I agree with HHM that it is likely no big deal why would you file information with the IRS that you honestly thought was wrong. If he shouldn't have gotten a 1099 then he shouldn't get one, period.

As your own case shows, these have a nasty habit of biting you in the behind. It's far better in the long run to correct the mistake at the source: with the creditor.

[HHM]

I disagree. With this error it's better to solve it at the source. While I agree with HHM that it is likely no big deal why would you file information with the IRS that you honestly thought was wrong. If he shouldn't have gotten a 1099 then he shouldn't get one, period.

As your own case shows, these have a nasty habit of biting you in the behind. It's far better in the long run to correct the mistake at the source: with the creditor.

There is a reason form 982 has box 1(a), it is FAR EASIER to correct it that way then to try and battle the bank to correct it. Path of least resistance.