Judgement AND 1099C for the same debt

[intoodeep71]

I was sued by Chase for two credit cards that I stopped paying, thinking I'd file BK. (Haven't filed yet, not sure if I should.) I have a judgement against me for nearly $30,000 total. At one point they levied my bank account, so I closed it. I deal in cash only now.

On 12/28/13 Chase sent me two 1099C forms for the same debts that I was sued for. A few days later, my wife got a "Notice of levy - under writ of execution (money judgement)". It has her name listed as a third party...

I'm so confused now! How can I have a judgement for the same debt that Chase has decided to discharge? I have to claim that $30k as income, but they also want me to pay it back?

Any help is greatly appreciated. Thank you!

[justbroke]

When it comes to IRS Form 1099-C, it really depends on which "event" code is listed on the 1099-C. Not all 1099-C debt is actually forgiven/canceled (discharged). in some cases, the creditor is reporting on 1099-C due to IRS regulations and not that they actually forgave the debt. I would consult a tax specialist on your particular "event" code.

[intoodeep71]

It is code G. What I've found online is: G - Decision or policy to discontinue collection

[tobee43]

that means chase is claiming you rec'd income as they have written it off as a loss. that doesn't necessarily mean your judgement is clear by any means. it just means they will no longer seek collection tactics unless they sell your debt to a third party, which they can.

you tax adviser if they are up on the laws ( up until a few years ago many accountants never saw a 1099 A C G etc.) but now many more are familiar enough to advise you how to handle this. if you have to add it to your base income it means you will taxed on it like again "gain" hence G.

[treehugger1]

Hi tobee43, I have dealt with a couple of recent 1099-C, code G, "cancellation of debt" forms. According to my tax CPA, they cannot legally sell the debt to a third party if they have already declared the debt uncollectable and taken the loss against revenue, while simultaneously issuing a 1099-C Code G. I think what is unclear is the difference between what one owes the creditor and what the creditor is allowed to write-off. For instance, the credit card company will generally report the principle amount of money loaned to you on your behalf. However, the added interest, late fees, etc. do not show on any of my 1099-C's, so I suppose the creditor could sell the non-income (to taxpayer) interest and fees.

Any thoughts on how this works?

[tobee43]

hiya tree!! hope all is going well.

of course we all know they shouldn't sell them, but many times they do. you still don't owe if that is what is determined by your accountant and you filed bk. these people sell these suppose it "dead" files all the time to the bottom feeders. usually if you get the 1099C it means that your debt has bee reported as Cancellation of Debt Income (CODI). just have your account attach a 982 and you should be fine. you will not owe anything further in about 99.9% of the cases.

[GoingDown]

I am speaking from the experience that my uncle faced a similar situation and this is how he dealt with it.

He owed over $28,000 on a visa credit card. The Original Creditor sued him for it and got a default judgment against him. The very next year he received a 1099-C in the mail.

The default judgment had already been sold to a Junk Debt Buyer, and the JDB was actively trying to collect the debt this whole time.

He filed a 982 that year along with his normal tax return, and thought it was all over with. About a little less than a year later, a letter from the IRS arrived in the mail saying that they wanted past due taxes on that amount plus interest, and if he didn't pay up right away, they were going to add penalties to it as well.

So, he sent them a detailed letter by certified mail telling them his side of the story and including copies of the judgment and the letters from the junk debt buyer and another copy of the 982 he had already sent to them. And he added this little jewel to the letter: I WANT TO APPEAL THIS MATTER TO FEDERAL TAX COURT, PLEASE SEND ME THE NECESSARY FORMS AND INFORMATION TO APPEAL THIS TO TAX COURT.

One thing I have learned from hearing various relatives and neighbors and friends who have had to deal with the IRS is that they do NOT want to go to tax court. They will often bend over backwards to avoid going to tax court. I know of someone who owed the IRS (according to the IRS of course) over $18,000 in past due taxes, interest and penalties, and he appealed it to tax court and the closer and closer it came to time to go to court, the lower and lower the settlement offers came in from the IRS. Finally, he got it all the way down to around $950 and he settled it with them.

Now, I should point out, this person had no real estate, no checking account, etc., so there was nothing easy for the IRS to snag from him. Otherwise, I think they wouldn't been so cooperative with him.

So, anyways, back to my main story, this uncle who had the default judgment against him went all the way to tax court, and the tax court found that the 1099-C was issued in error because they were still trying to collect the debt from him, and that it had already been reduced to a judgment by the time they had wrongly filed the 1099-C. So, they said he owed no taxes on it.

So, if the IRS comes after you, you tell them you want to take it to tax court. They do not like tax court.

http://www.ustaxcourt.gov/about.htm

[jacko]

Why does the IRS not like tax court?

I am speaking from the experience that my uncle faced a similar situation and this is how he dealt with it.



So, if the IRS comes after you, you tell them you want to take it to tax court. They do not like tax court.


http://www.ustaxcourt.gov/about.htm

[catleg]

That is a great story, I will file it away mentally in case I ever have IRS trouble again.

My IRS story is that filing an amended return seeking a refund of over $500 places you in the same bucket as tax protesters in the eyes of the Service.

My employer filed an amended W2 based on my social security disability determination (which required me to pay them back some money which I had received in "wages". Very ugly situation which almost always results in you losing money to taxes).

Luckily I worked it out with a letter written at a third grade reading comprehension level. If not this tax court trick would have been my next try.

I suspect nobody likes getting overruled. Especially IRS employees.