2012 Income Tax Credit Cards Companies Send 1099-C Forms

[Sammie]

I received an email from our Acct. which states that the CC companies will be sending us 1099-C forms this year. It states that "Cancelation of Debt is Taxable Income". Can anyone explain exactly what this means? My husband asked me how we can be taxed on income that we never received. Thank you. sammie

[justbroke]

Well, you received the benefit and the IRS defines that as income! Think of it this way... you purchase a $2,000 TV on a credit card. you never make a payment. The creditor then issues a 1099-C forgiving the debt. You don't pay for the $2,000 TV. You have now received $2,000 in "income" because that's the value that you received.

Since you are in a Chapter 13, you need not worry since you are "insolvent" and you can simply file IRS Form 982 to declare that the debts are included in bankruptcy. You would then owe no tax.

[Pjmax]

I found this article:

http://blog.credit.com/2012/02/what-...r-an-old-debt/

It is kind of scary, especially where very old debt comes back. Maybe an expert can clarify, but there appears to be new IRS rules for 2012. I would think this is the time of year for companies to be sending these, so we are likely to see a lot of this.

[justbroke]

Yes, it appears that this is the IRS enforcing the rules where the creditors need to file 1099-Cs for certain debts.

[Sammie]

I just called our Attorney and was told that the forms do not have to be included with our Income Tax, that cc's are discharged thru the Bk. The IRS just needs the number IRC 108 written on our Taxes as proof that they were claimed in the 13 Bk. Thank you for your quick responses. Happy Thanksgiving. sammie

[Pjmax]

I know there have been questions about whether or not to tell your accountant you've filed bankruptcy. I would think it's now a definite yes, since there will be more paperwork involved.

I'm also wondering about all the folks who've waited out the SOL.

[Sammie]

Pj our Accountant is still in NJ, so I am glad that I called our Attoney's Office here, because obviously she does not know this information. sammie