Author Topic: 1099-C Cancellation of Debt from Capital One Services  (Read 5345 times)

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computerguy1

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1099-C Cancellation of Debt from Capital One Services
« on: January 27, 2009 05:56:43 PM »
Capital One Services sent me unfortunately a 1099-c for a debt that was charged off on November 19, 2002. I have their original letter of Charge Off dated November 19, 2002.  Isn't there a SOL for 1099-c's.  In KS the SOL for any written credit card agreement is 5 years which would have been November 20, 2007 as the SOL.  What's up with this last minute to try and squeeze more money from me.  What is the correct procedure for dealing with these crooks that are already receiving Billions from our tax dollar and the bail out that is paying their high salaries.

logger1

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Re: 1099-C Cancellation of Debt from Capital One Services
« Reply #1 on: January 27, 2009 10:56:03 PM »
It is my understanding that 1099's have no "look-back" period under the tax laws. A charge-off is an accounting move to remove your account from "accounts receivable." The 1099 can occur much later when the creditor decides that this is a total loss. You should speak to a CPA about this as I am just offering my own knowledge based on what I have read in other places. The fact that this came from the original creditor suggests you need to do a bit of research.

In addition, it is my understanding that there should be some itemization of principle and interest.

Finally, if you can show you were insolvent at the time you defaulted, then you may not be liable for taxes on the 1099. I wish I could offer more info, but I can only suggest my limited knowledge as I am currently undergoing a financial situation that could lead to 1099's in the future.

Best to you!

Rottweiler

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Re: 1099-C Cancellation of Debt from Capital One Services
« Reply #2 on: January 28, 2009 03:30:02 AM »
You have it wrong, logger1: 

The tax liability accrues for the tax year in which the 1099-C is issued (taxed as regular income), regardless of when the debt was originally charged off.  Therefore the taxpayer can get that insolvency exemption if they are insolvent at the time the 1099-C is issued; it does not matter what their financial status might have been the tax year of the debt being charged-off.

This question would be a good one for Flyingifr...paging Flying...:)

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ghost

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Re: 1099-C Cancellation of Debt from Capital One Services
« Reply #3 on: January 28, 2009 09:53:14 PM »
Once they issue the 1099, the debt is as good as gone. They are giving up and you owe taxes on it...unless you are insolvent, which you very well may be.
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Flyingifr

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Re: 1099-C Cancellation of Debt from Capital One Services
« Reply #4 on: January 29, 2009 08:35:48 PM »
Rotty has it right.

The important thing to remember is this - when figuring your assets and liabilities to show insolvency, count the assets at "quick sale value", which is Fair market value less at least 20%, and include the debt being forgiven as a liability.
BTW-the Flyingifr Method does work. (quoted from Hannah on Infinite Credit, September 19, 2006)

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logger1

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Re: 1099-C Cancellation of Debt from Capital One Services
« Reply #5 on: January 31, 2009 06:11:54 AM »
I guess I wasn't explicit enough about "look-back." Yes, if you can prove insolvency at the time of the 1099 (debt forgiveness) then the 1099 should not result in any tax liability. On the other hand, if you receive a 1099 and fail to include it as taxable income, then this taxable income can be called upon in future years by the IRS. As an example, suppose you decide to shutdown some retirement program and cash out before you are entitled to for tax purposes. In such a case, the IRS could look back at this and question the non-tax payments years from now. What I was trying to say is that one is responsible for the potential tax obligation on nearly all 1099's. If you fail to show the "income" on a particular year's return, then it can still be called into question during later years. As far as I know, in such a situation, the burden of "proof" is on the taxpayer.

Rottweiler

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Re: 1099-C Cancellation of Debt from Capital One Services
« Reply #6 on: January 31, 2009 11:27:31 AM »
The key to your argument seems to be "The IRS can do a look-back IF one gets a 1099-C but fails to declare the income."  That is true and there would be no excuse on the taxpayer's part for ignoring the situation.

The main implied question, however, is a different one:  "If one does not get their copy of the 1099-C but the creditor submits one to the IRS, could the consumer/taxpayer be facing severe penalties for "evading" taxes on such a debt although they had no idea they even owed the money?"

Another implied question:  "If that were the situation, would the consumer's financial situation at the time the deficiency is discovered be the one considered, or would "solvency" or lack of it be based on the situation for the tax year the 1099-C was actually issued?"

In the first case, the IRS will want their interest and penalties AND the tax and will book no excuses, even a reasonable one like the taxpayer did not even know they owed that additional tax due to no fault of their own.

The second case--which tax year's situation would apply in determining whether the taxpayer can declare themselves "insolvent" or not--is not so easy.  Logic would say the situation existing during the tax year when the deficiency is actually discovered would be controlling.  Logical, and possibly wrong:  The IRS' idea of "logical conclusion" and ours may well be two different things and guess whose "conclusion" would rule?  :P
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Mischievous Smurfy

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Re: 1099-C Cancellation of Debt from Capital One Services
« Reply #7 on: January 31, 2009 03:06:59 PM »
one is responsible for the potential tax obligation on nearly all 1099's

I won't go into detail here because it would be to far estray the topic ... but it is not considered income if the expense "cancelled" would be deductible.

But that doesn't appear to be the case here.
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Flyingifr

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Re: 1099-C Cancellation of Debt from Capital One Services
« Reply #8 on: February 02, 2009 04:23:13 PM »
Let's remember the time frame here. The creditor charged the debt off in 2002 and forgave it in 2008.

IRS doesn't care when the debt was charged off when looking at the 1040 - just when the dbet was forgiven, and all claims of Insolvency exception are from 2008, not 2002.

IRS "look back" is 3 years unless they allege Fraud.
BTW-the Flyingifr Method does work. (quoted from Hannah on Infinite Credit, September 19, 2006)

I think of a telephone as a Debt Collector's crowbar. With such a device it is possible to pry one's mouth open wide enough to allow the insertion of a foot or two.

Morality of Debt? No one ever went to the Nether Regions for not paying a debt.

Founder of the Credit Terrorist Training Camp (Debtorboards)

 

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