As I previously posted about, I learned that, Cancellation of Debt is Taxable Income, when my brother received notice that a creditor he had settled with 2 years ago filed a 1099-C for a deduction for Cancellation of Debt. Luckily he has a brother who is nice and is willing to do research for him.
Five Rules To Remember when Writing the IRS
When Dealing with the IRS Make Sure You Reply in Time
Anytime you are dealing with any governmental body, whether it is the IRS, Courts, Police, the number one thing to remember is to answer within the time allotted. The moment you miss a deadline your battle becomes that much harder.
When Replying to the IRS always use Certified, Return Receipt Requested U.S. Mail
Anytime you are dealing with any governmental body, whether it is the IRS, Courts, Police, the next thing to remember is – send your response by Certified, Return Receipt Requested U.S. Mail so no one can claim you violated the first rule above.
When Replying to the IRS always be Respectful
The person reading your mail is not evil, they have a job that pays their rent/mortgage, being rude will not make your challenge any easier. On top of that, the IRS has explained to you why they are increasing your income, as such, they have, at the very least, a leg to stand on.
When Replying to the IRS always be concise yet explanatory
I am going to assume that the agent who receives the explanatory letter is busy, and probably has very little interest in 14 pages of complaining and moaning about how a credit card company destroyed you. Rather, lay out your argument, and explanation of why you didn’t include the alleged cancelled debt in your income.
When Replying to the IRS always provide evidence
Do not assume the IRS is going to take the steps to look up what you are claiming. Provide all documentation that you referring to, and place it in the order in which it is referred.
Letter in Response to IRS’ Notice of Increased Income Pursuant to 1099-C
Remember this post is not legal advice, but rather is just how I helped my brother. As such, below is the letter I wrote for him.
Brother’s Name and Addy
SENT VIA CERTIFIED RETURN RECEIPT REQUESTED
Internal Revenue Service
Re: AUR Control Number XXXX (this was given on the material)
Social Security: XXX-XX-XXXX
Dear Sir or Ma’am:
Please allow this correspondence to serve as an explanation, and supplement to “Option 3” in Steps “A” and “B” of the provided official Response form (Please find the original herewith).
BACKGROUND:
As you may be aware, this situation, and subsequent involvement of the Internal Revenue Service arises from the filing of a 1099-C by:
ASTA FUNDING
To date, I have never received a copy of the 1099-C, and thus was not given the opportunity to attempt and discover where the alleged amount was derived from, nor am I able to determine whether the 1099-C was filed by the correct date.
PALISADES COLLECTION, LLC (hereinafter referred to as “PALISADES”) brought suit with the filing of a Summons and Complaint in XXXX of 2005 (Please find PALISADES’ Complaint annexed hereto). I filed an Answer proffering a General Denial as I was unfamiliar with the merits of the suit and underlying debt (Please find my Answer annexed hereto). As such, there was a contested liability.
After discovery and negotiations, a Settlement was reached, whereby I never admitted liability of the debt (please find the Settlement Agreement annexed hereto). As such, I respectfully request the Internal Revenue Service accept my original tax return.
Alternatively, even if one were to assume, arguendo, that “some” amount is owed I have yet to figure out how PALISADES arrived at their figure, and that, in20of itself should dismiss or severely reduce the increase in alleged income.
Should you have any questions, please do not hesitate to contact me.
Very truly yours,
BROTHER
While my writing style may be a bit too formal…it follows the rules I set forth above.
What was the outcome? I just received a letter from the IRS from a Cancellation of Debt that was filed in 2008. I settled a credit card debt with the same company you mentioned for a few thousand less. I never received a copy of the 1099C so I was not aware I owed until now. Not only do they want me to pay the rest of what I owe but also interest. I could understand if it was the actual lender filing a loss, but a collection agency that purchased a debt filing a loss doesn’t make much sense to me.
I would 100% prepare a letter fighting the charge. It didn’t work out that well for my brother, but we didn’t fight it that hard.
I still don’t think he owed the money, but he wasn’t emotionally read to start a real court fight.
I just received a 1099c as well however, I was a co-signer for my brothers autoloan. The car had mechanical issues and he let it be reoped. Am I responsible for this phantom gain of income?