Say you have $40,000 in unsecured debt from a single creditor. That debt is beyond the statue of limitations, and the creditor has provided you with a 1099-C with event code 'G'.
You then claim the $40,000 as income on your tax return to the IRS.
My question is: Say you now have the money to pay back the $40,000 to the creditor....how does this work since you already paid taxes on the debt to the IRS?
If the creditor has already written the $40,000 debt off their books, and you have already paid tax on the debt forgiveness, then consider yourself lucky! You no longer owe the creditor, and you can keep the $40,000. Use the money wisely.
Ms. Willi is a tax attorney, CPA, and Ohio-Certified Specialist in Estate Planning, Trust & Probate Law, with offices in Westerville, Ohio. She serves client families and private business owners throughout Ohio. Ms. Willi responds to Avvo questions as a public service to help educate and provide general guidance to questioners, but her responses are not legal advice and do not create an attorney-client relationship. Her posts are provided for informational purposes only and are not a substitute for advice provided by an attorney or licensed tax professional. Her phone number is 614-890-0500 and her website is www.willilaw.com.
Kaye is correct. The creditor has no interest in pursuing you once they have written the debt off their books. Since you said the taxes have been paid already, use the $40,000 as you wish.
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