Settled Credit Card, Now I have a 1099 form -PLEASE HELP

[ccmmjjoo]

What is the name of your state?South Carolina
I settled with 2 credit cards in 2004. I now have received 2 1099 forms. The forms had the amounts that were taken off the settlements (e.g. 1 card was for $12K, I settled for $3.5K, now I have a 1099 form for $8.5K).
I am sure I have to claim this on my taxes. Is there anyway around this?
Question 2 - Does the IRS tax this $8.5K as income that has not been taxed? If so, how much of the $8.5K can I expect to have to pay back?
This is ridiculous, I cant believe this. I started to think I was going to get ahead, or at least back on the road. Now these 1099's are going to get me oweing the Government instead of the credit card companies.

What form to I need to fill out if I end up having to pay the government money so I can set up payments?

I am desperate, any help will be GREATLY appreciated.
Thank you!
Chad

 

[Debt Guy]

Q. I settled with 2 credit cards in 2004. I now have received 2 1099 forms. The forms had the amounts that were taken off the settlements (e.g. 1 card was for $12K, I settled for $3.5K, now I have a 1099 form for $8.5K).
I am sure I have to claim this on my taxes. Is there anyway around this?

A. No. The IRS requires the bank to issue a 1099-C for the forgiveness of debt.

Q. Question 2 - Does the IRS tax this $8.5K as income that has not been taxed?

A. Yes.

Q. If so, how much of the $8.5K can I expect to have to pay back?

A. Whatever your marginal tax rate is -- 30% or so.

Q. This is ridiculous, I cant believe this. I started to think I was going to get ahead, or at least back on the road. Now these 1099's are going to get me oweing the Government instead of the credit card companies.

A. Write your congressman. I agree that it is kicking a man/woman when he/she is already down. Only Congress has the power to change this -- they should but they won't until enough people complain.

Q. What form to I need to fill out if I end up having to pay the government money so I can set up payments?

A. I don't know. I suggest you go to the IRS website and search www.irs.gov.

There is a possible way out -- you do not have to report this as income if you were insolvent at the time you made the settlement. Insolvent means your liabilities exceeded your assets. There is a special IRS form to fill out and attach to your tax return -- I can't remember the number but it is on the IRS website -- just search forgiveness of debt to find the form.

Email me directly if you can't find it and I'll look of if you have specific questions.

 

[hanjenden]

AK Did you use a settlement/negotiation company when settling these debts? If you did, part of the amount you paid to them can be used to offset the amounts on the 1099c. However, the deduction you can take is limited to 2% of your adjusted gross income.

I went through this myself at tax time. I asked about claiming insolvency, and the agent told me it is very difficult to do if you are not actually in the process of filing bankruptcy, or have recently been through bankruptcy proceedings. She said as long as you have any assets that can be sold, the insolvency claim is usually rejected.

My $23,000 of forgiven debt cost me about $2,100 extra on my taxes.

 

[Debt Guy]

I am not sure I entirely agree with the last poster.

When you say "agent" do you mean IRS agent? IRS is infamous for bad advice.

Go to the IRS website and get the exemption form. Read it -- about 3 pages long -- and see what you think it says.

If you think you qualify, file under that assumption. The worst is that in a later audit they will disallow the exemption and perhaps charge you some interest on the taxes you did not pay.

It is not illegal to avoid taxes. It is illegal to evade taxes. A good faith reading of the rules and having an exemption disallowed is not evasion.

 

[cyana24]

Debt Guy, what's the specific link? I searched the IRS site for about 15 minutes yesterday and couldnt find it. I don't need it personally, but it could potentially help other folks.

Thanks.

 

[Debt Guy]

http://www.irs.gov/pub/irs-pdf/f982.pdf

 

[cyana24]

Thanks, Debt Guy. What a mouthful - no wonder I couldn't find it! You are an asset to this board.