1099C but person claims it was all paid

[schirallicpa]

These debt relief programs are BS and we all know it.  But it's always an older person that gets scammed into them.  This guy paid payments thru some program, and has proof of the payments that was supposed to pay off a credit card.  But now - 2 years later - he gets a 1099C because the debt was discharged and his payments apparently didn't go to the CC company and the debt relief company cannot be found.  What to do.  Seems hugely unfair that he should have to pay tax on this.  But until this came in the mail last week, he didn't know he had been scammed.  I'm not sure if the IRS gives any room on this kind of stuff.  

[Lee B]

Why is it a scam?

Discharge of nonbusiness credit card debt is generally taxable income,

except when the taxpayer was insolvent immediately prior to the discharge or filed bankruptcy.

See Pub 4681

 

[schirallicpa]

he paid the company but the company did not apply money to the cc

 

[BulldogTom]

I would guess that your client "believed" he was paying the credit card company for the debts and the actual paperwork says he paid the debt relief company for their "services" of getting the debt discharged.    

Just my opinion, but I think your client is on the hook for the taxes on the discharged debt.

Tom
Longview, TX

[Medlin Software, Dennis]

There are legit entities which help. They negotiate for the debtor and arrange to disburse the "monthly" amount, sometimes/usually getting a fee from the holder of the debts.  They don't usually advertise - meaning the ones on TV are likely less than desirable.

[DANRVAN]

2 hours ago, schirallicpa said:

But now - 2 years later - he gets a 1099C because the debt was discharged and his payments apparently didn't go to the CC company and the debt relief company cannot be found.

He was scammed and TCJA suspended any possible deduction.  There was a bill introduced last month to reinstate the T & C Loss deduction, but I don't think it has gone anywhere.

Unfortunately she needs to report the COD income.

[BrewOne]

One of my fellow enrolled agents had fraudulent charges on a credit card in his name.  He thought he had it all cleared up (around $18k, over half of which was interest charges) but then received a 1099-C for the full amount (which he reported on his return).  Not the same thing, but makes me think it might be a tough nut to crack.

[Corduroy Frog]

Any way he could take a deduction for "Theft"?  Not as a casualty as in the old days, but if he has a business it might work.

[Pacun]

I agree with bullldog Tom. Having receipts that the person paid the credit counseling company means nothing unless you read the whole contract, have all the credit cards statements from 2 years ago, you added them up, you add the interest accumulated until the debtssss were paid off or discharged and THEN add all the one time fee for the counseling fee and monthly fees. Then you see how much he paid and how much the 1099-C should read.  

Again, I think we make things bigger sometimes. If he has a 1099-C, just work with that... see if he was insolvent the day before the debt was discharged and report it.  

My crystal ball tells me that no one was scammed in this case. 

[DANRVAN]

On 2/19/2024 at 8:58 AM, schirallicpa said:

payments apparently didn't go to the CC company and the debt relief company cannot be found.

 

On 2/21/2024 at 5:07 AM, Pacun said:

My crystal ball tells me that no one was scammed in this case. 

Really?

[Pacun]

4 hours ago, DANRVAN said:

 

Really?

Companies close all the time. Why do you care what happened in the last year when the reality for which you have been hired is to prepare the taxes based on the documents in front of you... you are not hired to verify the validity of each W2 or 1099 forms. 

I guess this is not my main job but when people start questioning the validity of the forms, I hand them back to them and I say: if you believe the forms are wrong, go back to the issuer and solve the issue. After you solve the issue, come back to me when you are ready to file your taxes. I am not a financial advisor, nor am I an attorney, nor have you hired me as such. 

[BTS]

As mentioned above if the taxpayer was "insolvent" then its not taxable.  Have your client do an asset vs liability work up to see if they were.  Proseries has an insolvency sheet built in we print off and give to clients in the same situation.