1099C

[TaxmannEA]

I have a client who had fraudulent charges on her credit card. She filed a police report and the card company removed the false charges. They have issued a 1099C showing the amount as discharged debt. I can't figure out how to exclude this from her income. I do not think that she should be liable as this was not her debt. Any ideas on how to proceed?

[Jack from Ohio]

Form 982 with explanation.

[RitaB]

Since I wouldn't know what option to check in part I of Form 982, I'd go to the line 21 worksheet, enter the amount there, and then subtract it on the same worksheet with an explanation.

[Roberts]

yeah I'd make an adjustment also on 21 and include form 8275 explaining why it was discharged. If you have a number from the police report - include it.

[SaraEA]

The IRS liaison has told us that if you zero out line 21, the side notations don't go with the efile.  Always leave $1 on the line so the statements are sent.

I have had my card compromised twice and never received a 1099C, nor has anyone I know.  The card issuers routinely remove charges that don't belong to the cardholder.  Are you absolutely sure that the C relates to the false charges, or did this client really have forgiven debt?

[TaxmannEA]

This was a card that the client used occasionally. When she got a bill, she knew that she hadn't made any charges and the locations where it was used were not in this area. She filed a police report, etc. but the card issuer balked, then agreed to cancel the debt when she cancelled the card. I have seen this type of thing before, but always after the fact. 

Thanks all for the advice.