success negotiating out of a 1099?

[sleeplessinohio]

Hello all,

I understand that in most cases it is not wise to negotiate with creditors. In our situation, it might be helpful.

Is it possible to negotiate a settlement with an original creditor or collection agency with the agreement (in writing) that they will not report the balance to the IRS as income?

Thanks for your input.

sleepless in ohio

[AngelinaCatHub]

I like your idea. However, for both sakes, it may be illiegal. I mean, besides our Special Services, Secret Services, who is more powerful? IRS services, of course. I would really check with your lawyer.

You know, the creditor may promise you anything and in January, SURPRISE, 1099.

'Hub

[StartingOver08]

Apparently the IRS mandates that the CA is required to provide a 1099 for forgiven debt of $600 or greater. The IRS is probably a bigger threat to the CA than any of us are, so it is doubtful that the CA would not send the 1099. You can ask of course. But you are unlikely to have the CA agree

[justbroke]

And adding to all the other good information... if you're technically insolvent, the IRS may forgive the difference between your insolvency and the debt (the value of the 1099 applied towards your income for that year) against your taxes on a 1099 anyhow. Nice feature.

See IRS Publication 908. (Note: I was very generic, and you're only taxed on the amount to which you aren't insolvent. You really need to see a tax specialist on this. I do tax returns for many people each year, but have never done anything like this!)

[HHM]

Hello all,

I understand that in most cases it is not wise to negotiate with creditors. In our situation, it might be helpful.

Is it possible to negotiate a settlement with an original creditor or collection agency with the agreement (in writing) that they will not report the balance to the IRS as income?

Thanks for your input.

sleepless in ohio

Absolutely not. Any such contract clause is void. IRS regulations REQUIRE the reporting of forgiven debt in an amount over $600. You cannot contract around federal law and anyone who tells you otherwise is ignorant or lying.

This is a big issue in the short sale arena, because you have many Realtors telling home owners that they can get the banks to not report a 1099. Total BS. Guess what happens if a creditor does not issue a 1099...the balance owed REMAINS A COLLECTABLE DEBT.

[sleeplessinohio]

I hadn't realized the suggestion was illegal.

Thanks to everyone.

sleepless

[fltoo]

Yup, definitely needs reporting to the IRS.

Real estate agents are going through heavy duty training on short sales now and hopefully telling sellers that although they might be exempt from the tax on the forgiven debt for several reasons, the forgiven debt still has to be reported to the IRS.

Maybe some of the small, independent agencies are not making this training available.

[Flamingo]

And adding to all the other good information... if you're technically insolvent, the IRS may forgive the difference between your insolvency and the debt (the value of the 1099 applied towards your income for that year) against your taxes on a 1099 anyhow. Nice feature.

See IRS Publication 908. (Note: I was very generic, and you're only taxed on the amount to which you aren't insolvent. You really need to see a tax specialist on this. I do tax returns for many people each year, but have never done anything like this!)

One definately need a tax specialist for this - one's chances of getting audited are extremely high. This has been discussed many times on here previously.