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Hi, my name is Mark. I will be happy to help you with your questions. So have already paid tax on the cancellation of debt income. You should not have to pay tax again. It will be difficult to keep Midland Funding from issuing another 1099-C. If they do you would need to report the income. You would also report an equal offsetting amount with the description that this Cancellation of Debt was previously recognized in 2010 (or whatever year).
It is not illegal for Midland to issue another 1099-C. They can claim the other one was issued in error. If you reached a settlement agreement with Midland this amount should reduce the total cancellation of debt. If they do issue another 1099-C it is not taxable. You would still need to report the amount and back out the previous amount of COD income that was reported.
The issue has been bouncing around in the courts for the past several issue. Specifically, if a 1099-C indicates that the debt is cancelled and prohibits the credit from pursuing collection activities.