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What is the statute of limitations of sending a 1099-C?

Angier, NC |

I received notification from the IRS that a 1099-C was received for my 2008 tax year from a collection agency, and that I now owe back taxes on this. The collections agency claims the debt is from a credit card from 1998. I had disputed the debt in 2008, and asked them to no longer contact me because, even if it were my debt, the statute of limitations for collections had passed. Can the collections agency then send a 1099-C to the IRS for this money? And can they claim that I owe them obviously more money than what they paid the original debtor for in the first place? Also, How can the validity of the debt be disputed to the IRS when the company will not give paperwork showing an agreement between them and me?

Attorney Answers 3

Posted

Sure they can send anything to the IRS. You have to amend your past return claiming this expense or start a dispute. I would consider the cost of representation vs owning up to the debt. Best of Luck!

Stephen F Wallace
2411 Penny Road, Suite 203
High Point, NC 27265
P 336.882.4940
F 888.500.1846

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Posted

The IRS has for quite some time required banks government entities to issue a 1099C for debt that was forgiven. The IRS thinking has been that if you borrowed money and never paid back the money, then that borrowing should be taxed as income.
Most charged-off debt is sold by original creditors to a debt buyer at a discount. The debt buyer then attempts to collect the debt. Around 2005 or so, there was a change in the IRS instructions that for the first time required debt buyers to issue a 1099c. The Debt Buyers Association was very much opposed to this requirement and filed suit against the IRS (DBA v Snow). The DBA lost that litigation in 2006.
The holder of the debt has no vote in the matter. They are required to issue the 1099c. The IRS has established a list of eight different situations under which a 1099c must be issued. Those triggers are:
1. A discharge in bankruptcy under Title 11 of the U.S. Code for business or investment debt
2. A cancellation or extinguishment making the debt unenforceable in a receivership, foreclosure, or similar federal or state court proceeding.
3. A cancellation or extinguishment when the statute of limitations for collecting the debt expires, or when the statutory period for filing a claim or beginning a deficiency judgment proceeding expires. Expiration of the statute of limitations is an identifiable event only when a debtor's affirmative statute of limitations defense is upheld in a final judgment or decision of a court and the appeal period has expired.
4. A cancellation or extinguishment when the creditor elects foreclosure remedies that by law end or bar the creditor's right to collect the debt. This event applies to a mortgage lender or holder who is barred by local law from pursuing debt collection after a power of sale in the mortgage or deed of trust is exercised.
5. A cancellation or extinguishment due to a probate or similar proceeding.
6. A discharge of indebtedness under an agreement between the creditor and the debtor to cancel the debt at less than full consideration.
7. A discharge of indebtedness because of a decision or a defined policy of the creditor to discontinue collection activity and cancel the debt. A creditor's defined policy can be in writing or an established business practice of the creditor. A creditor's practice to stop collection activity and abandon a debt when a particular nonpayment period expires is a defined policy.
8. The expiration of nonpayment testing period. This event occurs when the creditor has not received a payment on the debt during the testing period. The testing period is a 36-month period ending on December 31 plus any time when the creditor was precluded from collection activity by a stay in bankruptcy or similar bar under state or local law.

It is hard to know which event triggered the issuance of your 1099c -- it could easily be #3, #7 or #8. Either way, I don't believe you have a statute of limitations argument here. However, you may have grounds to file an offer in compromise - doubt as to liability.
I strongly suggest you consult with a tax attorney to discuss this matter.

THESE COMMENTS ARE NOT LEGAL ADVICE. They are provided for informational purposes only. Actual legal advice can only be provided after consultation by an attorney licensed in your jurisdiction. Answering this question does not create an attorney-client relationship or otherwise require further consultation.

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Posted

If there is a bona fide dispute about whether or not you owe the money then it may not be forgiveness of debt income which results in income to you. Suggest you consult with a tax attorney assuming the dollars justify the cost.

NOTE: If you find this response helpful, please click on the “thumbs up” button at the bottom.

The response given is not intended to create, nor does it create an ongoing duty to respond to questions. The response does not form an attorney-client relationship, nor is it intended to be anything other than the educated opinion of the author. It should not be relied upon as legal advice. The response given is based upon the limited facts provided by the person asking the question. To the extent additional or different facts exist, the response might possibly change. Dennis Brager is a Tax Attorney, and a State Bar Certified Tax Specialist licensed to practice law only in the State of California. Responses are based solely on California law and Federal Tax Law unless stated otherwise. Any federal tax advice contained in this communication is not intended, nor written to be used, and may not be used, for the purpose of (i) avoiding penalties that may be imposed under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein

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