1099-Misc received from Fidelity

[Sham11801]

Hello! I was recently discharged in October 2009 and recently received a 1099-Misc form from Fidelity which is classfiied as "uncollectible reimbursement". This was $3100 from a margin debt in a brokerage account where a stock owned on margin went bad. My attorney advised he would add Fidelity as a creditor so I should not pay it and include it with my filing. They never tried to collect the debt prior to or after the bankruptcy. Anyone have experience or a suggestion in handling this? If i have to report this as income, it will cost me about $800 in federal and state taxes..

[potsie834]

I don’t know if this is going to help or not, but I had about $16,000 of debt discharged by credit card companies over a year ago. I received a 1099c which increased my yearly income by the listed amount; this put me into a different tax bracket and I was going to have to pay $3500 for federal taxes, and $1500 for state taxes. I was able to avoid paying the listed amounts by showing that I was insolvent. In order to proof this, I had to show evidence that I was insolvent prior to, and after the discharge of the listed credit card debt. Not only did I not have to pay the listed amount, but I actually received a state tax refund of about $200, and federal tax refund of about $400.

All I can say is talk with your CPA….they should know and understand how this works; mine did! Good Luck.

Potsie834

[Flamingo]

Was the debt actually listed in your filing? Pull out your creditor matrix, call the attorney who handled your BK and advise what you received. If your debt was discharged you should not be receiving any 1099's. Our attorney advised us after our discharge if we receiving anything from any creditor discharged in our BK eitiher trying to collect or saying we still owe, to contact him immediately.

[Sham11801]

Was the debt actually listed in your filing? Pull out your creditor matrix, call the attorney who handled your BK and advise what you received. If your debt was discharged you should not be receiving any 1099's. Our attorney advised us after our discharge if we receiving anything from any creditor discharged in our BK eitiher trying to collect or saying we still owe, to contact him immediately.

Yes, i made sure they were on the matrix..I was more worried about them coming after the debt post-discharge than getting a 1099-Misc for the uncollectible debt but this is upsetting as well. I assumed the discharged debt would not be taxable here..with this logic, we might as well get a 1099 for all credit card debts too! Does not make sense...i contacted fidelity and they said even though I i filed they must still report the unpaid debt to the IRS and to contact a tax advisor.

[BCA2009]

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[aljohnson007]

If the debt was included in bk, check item 1a on Form 982 and file with your tax return. You do not have to include the amount on your 1040 and there is no tax due on the 1099C. Form 982 has an instruction sheet so be sure to read that also. Hope this helps.

[Sham11801]

Thanks for the great info aljohnson! I had already filed my tax return for 2009 a week ago, but I will amend and send the new form. Question though, do you know if i need to complete a 1099-Misc form as well or just the 982?

[aljohnson007]

Just the 982.

[BCA2009]

You will need to complete the 1040X and attach the 982. In your case there will be no changes to the taxes due, but you still have to complete the 1040X.

[JoeBankrupt33]

1099-Misc and 1099-C are two different forms. Form 982 only applies to 1099-C. You just need to call the IRS and ask what to do. Believe it or not, they are very helpful. When you call, write down the name and agent number of the person yo talk to.

[Sham11801]

I saw that the 1099-Misc was not mentioned on the 982 form, so i think fidelity has to send a new 1099-C out. The $3100 was not labeled as a discharged debt on the 1099-Misc so thats why its being misclassified.

[BCA2009]

I saw that the 1099-Misc was not mentioned on the 982 form, so i think fidelity has to send a new 1099-C out. The $3100 was not labeled as a discharged debt on the 1099-Misc so thats why its being misclassified.

There are several ways it could be handled, and all of them could end requiring a call to IRS later on.

1. Just treat the 1099-misc as if it were a 1099 C and check the box on form 982. (this is what I would do). I would attach the 1099 to the tax return and write "Dicharged in Bankruptcy" across the front of it.

2. Ignore it all together and wait for the IRS to send you a letter. It will probably be 18 months to two years before they contact you. Then send them a copy of your discharge papers. You might end up having to do this with option one above also.

3. You could also list the 1099 on a schedule C as income and include the exact amount as an misc expense, so that it nets to zero. On the comment line of the expense write "discharged in BK". I probably would not go this route, although it probably would be the least likely to get a response from the IRS. The IRS computers try to match up the SSN's on the 1099 to your tax return. As long as the revenue matches, that most likely will be the end of it. And since most people who file for BK, have relatively small incomes and taxes, the tax return would generally fall way under their radar for audits.

4. Contact the company that issued it and get them to issue a corrected 1099 Misc for zero amount. Good luck with this!

If you call the IRS 5 times and ask how to handle this, I bet you will get 5 different answers, if you can get them to give you any advice at all. I agree with the poster above that said they try to be very helpful, but they don't have the knowledge to give you answers to tax questions. As a matter of fact the rep's at the normal customer service line for the IRS are not allowed to give advice. They will try to transfer you to a different department that handles this sort of thing. And in the end, you still may get a letter in the mail two years from now.

Like i said above, I would just do the 982 thing and keep a copy of the discharge paperwork if they ever send you a letter.