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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28081
Experience:  Taxes, Immigration, Labor Relations
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I received a letter from IRS stating I owe over $2200 2014.

Customer Question

I received a letter from IRS stating I owe over $2200 for year 2014. The reason, is a credit card company submitted a 1099 showing a $9200 debt I didn't pay well over 10 years ago. Had I received a 1099 from that cc company I could have at least shown the amount on the 1099 on my taxes when I filed for 2014; and made arrangements to pay the tax owed. How is a taxpayer supposed to know about things like this? I don't have the money to pay this unforeseen tax bill, and am presently paying installments for taxes I owe for 2015! What can I do?
Submitted: 4 months ago.
Category: Tax
Expert:  Lev replied 4 months ago.

Several issues...


When you used the money from your credit card - that was a loan - and that amount was not included into your gross income fro tax purposes - correct? That was because you were expected to pay that amount back.

However - when it became obvious that amount will NEVER be paid - it is classified as COD income - cancellation of debt income - and becomes taxable.


The credit card company decided that your debt is not collectible - and chooses to forgive it. In this case they are required to issue form 1099C reporting that amount.

generally - that amount is reported on form 1040 line 21 as Other income.

However - if you were insolvent at the time the debt was forgiven - you may use form 982 and exclude that amount from taxable income.


So far - if you did not include that forgiven amount into your tax return - the IRS did that for you - and if you agree - you are expected to pay additional tax liability.

If you are not able to pay - you may apply for the installment agreement - and pay that amount in manageable monthly payments.

If you already have installment agreement - you may apply to modify it - and include that additional debt.


Customer: replied 4 months ago.
when can anyone expect to feel free from unforeseen taxes? i understand my responsibility to pay my debts and, like i said, if i had known in 2014 that i had to report a debt much older than 10 years i would have done so. i never received a 1099 so how was i supposed to know i would end up with a tax bill? i was under the impression that there was a statute of limitations on unsecured debt. assuming a limitation of three years why would a cc company wait 10 to 15 years to report a forgiveness debt to the IRS??
Expert:  Lev replied 4 months ago.

That would be another issue if you feel that form 1099C was issued incorrectly.

That must be communicated to the sender.

Arizona Law allows lenders a 6 Year Statute of Limitations to Collect Credit Card Debt.

Otherwise - you are correct - the form 1099C must be issued in the year when the debt becomes noncollectable.

It is possible that the credit card company overlooked that debt - and it just popped up in their report - and they just clear that report by sending you form 1099C.

If that is an issue - you may communicate with the sender and ask for corrections.

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