Question about Charge Offs

[Goobergal99]

I worked seasonal for the IRS and "YOU DO NOT HAVE TO FILE A TAX RETURN IF YOU MAKE UNDER $600" In fact the IRS will not even bother to audit a person who made under 15,000 a year (whether they file or not) because unless there is significant income from a spouse there is no gain on the part of the IRS. In other words you are the one losing out because you would be owed a refund. that's what the commericals mean when they say that the IRS has millions of dollars in unclaimed funds.

 

[barkley]

kinda off topic-but the issue with the irs and reporting stolen property brought back a flood of memories. when i worked eligibility for the welfare department we had a speech we had to give each applicant that told them they had to report ANY MONEY they received-though legal or illegal means and that we did not report to either the irs or the police so it would not be an issue with them-but if they failed to report to us it was WELFARE FRAUD!!!

it is truly fascinating to process monthly 'income reports' from people who are involved in illegal activities-we had some who were very upfront about what they did (prostitutes who kept a running tally on binder paper with the dates and amounts-all under the customer name of 'john' ) and some who were more 'creative' (the local weed guy reported his earnings under 'herbal supplements' and the guy who fenced stolen electronics referred to himself as a 'low overhead private electronics distributor')

 

[seashoreCM]

Caution: Creditor A may charge off the debt and also "sell "the debt (by selling the loan note) to Would Be Creditor B who then tries to collect the debt.

The creditor has to forgive the debt in order for it to be taxable income to you. That means the debt is no longer owing and payable.

I do not know at what moment a debt is considered forgiven and I don't know how to find out when/whether a creditor has forgiven a debt. There is nothing wrong with asking for a formal letter of forgiveness after you hear that a debt was "charged off", but I believe you may regard a 1099 form as evidence of forgiveness.

Disney hints:
http://members.aol.com/ajaynejr/disney.htm

 

[ducklite]

I worked seasonal for the IRS and "YOU DO NOT HAVE TO FILE A TAX RETURN IF YOU MAKE UNDER $600" In fact the IRS will not even bother to audit a person who made under 15,000 a year (whether they file or not) because unless there is significant income from a spouse there is no gain on the part of the IRS. In other words you are the one losing out because you would be owed a refund. that's what the commericals mean when they say that the IRS has millions of dollars in unclaimed funds.

This is so true. A couple of years ago I filed a tax return for my son who had made $580 that year. He got a few dollars back. Why should the government keep what he was entitled to?

Anne

 

[Cheshire Figment]

As an aside I find this part of the tax law is hilarious

Originally Posted by IRS website
Stolen property. If you steal property, you must report its fair market value in your income in the year you steal it unless in the same year, you return it to its rightful owner.

To add to this, there is a Supreme Court Ruling, James vs. US, which hold that embezzlement proceeds are taxable income.

Don't forget the basic tenent of the Internal Revenue Code: "All income from all sources, unless specifically exempted by law, is taxable under this code." How do you think the government has been able to imprison some major criminal, it if for violation of the Internal Revenue Code and non-reporting of income.

Mike (CPA Retired)

 

[In A Jam]

Thank you everyone for your responses, but I am still confused.

Some are saying that the charge offs will fall off 7 years after the charge off date (even if I continue to pay). Others are saying that the seven years begins when I make my final payment. Which is correct?

I am paying on all of these (so no moral issues to worry about) and I am also paying the full amounts (no IRS issues either; I have found that usually companies won't settle for less if you can't pay it off in a lump sum).

I am hoping to get my credit back on track, but if the charge offs are going to show for another 10 years or so, how am I ever going to come back from this?

 

[ducklite]

Thank you everyone for your responses, but I am still confused.

Some are saying that the charge offs will fall off 7 years after the charge off date (even if I continue to pay). Others are saying that the seven years begins when I make my final payment. Which is correct?

I am paying on all of these (so no moral issues to worry about) and I am also paying the full amounts (no IRS issues either; I have found that usually companies won't settle for less if you can't pay it off in a lump sum).

I am hoping to get my credit back on track, but if the charge offs are going to show for another 10 years or so, how am I ever going to come back from this?

They will show for seven years after the final payment, BUT, creditors really don't care after about two years as long as it's been paid, and frankly it's not going to make much of a difference to your credit score once it's been paid for two years.

Anne

 

[T. Lynn]

I still don't understand why you'd have to claim the money anyway. It's not like you earned it from a job. If you have a cable bill for $500 and you only pay $300, that money ($200) isn't EARNED income. Or if you had a bunch of stuff on layaway for $100 and it all went onsale when you picked it up and you only spent $50 then. It's not technically earned money. They're not physically handing you the money from something you earned, it's more of a savings that your making.

You're already claiming the money from your job that you made. They don't check your credit card balances when you file your federal return.


Better Example:

Your job wages for the year $5,000.

You go to the doctor and the bill will be $1,000. After hours on the phone of crying, the doctor decides to only charge you $500.

What you report would only be the $5,000 you earned from your job. The $500 wouldn't be earned money (because you didn't actually make $5,500).
The $500 is only money saved because the doctor reduced his fee.

 

[apirateslifeforme]

My ex settled his $47,000 credit card debt 8 years ago, and those accounts are STILL listed on his report as of this year. The credit reporting agencies refuse to remove them. He was wondering if it's because he got into major debt (with other credit cards) two more times since. He's called the 3 agencies, the creditors themselves (even though he's had no transactions with them in the 8 years since)...they simply will not remove them.

I'm just grateful that it didn't affect my credit.

 

[Chicago526]

I still don't understand why you'd have to claim the money anyway. It's not like you earned it from a job. If you have a cable bill for $500 and you only pay $300, that money ($200) isn't EARNED income. Or if you had a bunch of stuff on layaway for $100 and it all went onsale when you picked it up and you only spent $50 then. It's not technically earned money. They're not physically handing you the money from something you earned, it's more of a savings that your making.

You're already claiming the money from your job that you made. They don't check your credit card balances when you file your federal return.


Better Example:

Your job wages for the year $5,000.

You go to the doctor and the bill will be $1,000. After hours on the phone of crying, the doctor decides to only charge you $500.

What you report would only be the $5,000 you earned from your job. The $500 wouldn't be earned money (because you didn't actually make $5,500).
The $500 is only money saved because the doctor reduced his fee.

Income is income, regardless if you earn it or not. If you win money gambleing or in the lottery, that's income. If you win a prize, that's income. If you make money on investments or interest, that's income. You didn't work for (earn) any of these things, but the IRS still taxes it.

In your example, I'd think that if the doctor reduces his fee prior to sending you the actual bill, it's not reportable. But if he bills you and then, after you talk to him, he reduces it, then I'd think (but I'm not sure) you'd still need to report it just like you'd report any other forgiveness of debt (although I'm sure many people don't, not on purpose but just because they don't know they're supposed to).

 

[seashoreCM]

I You go to the doctor and the bill will be $1,000. After hours on the phone of crying, the doctor decides to only charge you $500.

What you report would only be the $5,000 you earned from your job. The $500 wouldn't be earned money (because you didn't actually make $5,500).
The $500 is only money saved because the doctor reduced his fee.

Semantics makes a difference.

If the doctor bills you repeatedly for $1,000. and then accepts $500. and calls it even, then you realized $500. of additional income. If the doctor bills you at first for $1,000. and later adjusts his bill to $500. you did not realize any additional income. Additional facts may come into play if the IRS comes for an audit, for example if the doctor referred the matter to a collection agency and/or if the doctor charged interest since the latter is computed on some outstanding owed balance.

 

[T. Lynn]

I understand the gambling income. Your actually receiving money that you didn't have (thus income).

With bills, you were going to spend xx.xx of money you already had, but instead it was adjusted for whatever reason.

If you had $500 in your savings and took $100 to pay a bill that they reduced (was going to be $200), I can't see how the other $100 would be income. It doesn't make sense. It wasn't adding money to your income. If you didn't owe anything and someone gave you money, then that's income or money earned for whatever reason. It's money you DIDN'T HAVE BEFORE.

 

[picantel]

Jen let me explain why you are incorrect. Let us say you settle a bill of $5000 for $2000 with a creditor. The OC either tells you it is settled in full of they send a letter stating this. If they send a 1099-C form then the debt is truly over with and cannot be resold. You pay your taxes on the remaining amount and go your way. Let us say they do not send a 1099-C form. Even though they told you it was settled in full without proof they will resell the amount to some scumbag CA who will come after you for the remaining 3k along with a couple k in bogus fees and lord knows what else they choose to add. If the OC failed to send the 1099-C form you cannot just pay taxes off and consider it closed. That is why the 1099-C form is important if you want to get it over with. If you settle with a CA they will just lie and resell irregardless.

For the person who has negative info over 8 years old. Firstly, call the credit bureaus and ask when it is suppose to come off your credit. If you have proof these are over 7 years old then get an attorney from the www.naca.net. I have butted heads with all 3 CRAs and come out on top every time.

 

[jenr812]

I worked seasonal for the IRS and "YOU DO NOT HAVE TO FILE A TAX RETURN IF YOU MAKE UNDER $600" In fact the IRS will not even bother to audit a person who made under 15,000 a year (whether they file or not) because unless there is significant income from a spouse there is no gain on the part of the IRS. In other words you are the one losing out because you would be owed a refund. that's what the commericals mean when they say that the IRS has millions of dollars in unclaimed funds.

I guess I should clarify...you are correct of course, but I was working under the assumption that the individual has other income besides the unearned income that may or may not generate a 1099 depending on the amount, thus the need to claim it.

 

[jenr812]

Jen let me explain why you are incorrect. Let us say you settle a bill of $5000 for $2000 with a creditor. The OC either tells you it is settled in full of they send a letter stating this. If they send a 1099-C form then the debt is truly over with and cannot be resold. You pay your taxes on the remaining amount and go your way. Let us say they do not send a 1099-C form. Even though they told you it was settled in full without proof they will resell the amount to some scumbag CA who will come after you for the remaining 3k along with a couple k in bogus fees and lord knows what else they choose to add. If the OC failed to send the 1099-C form you cannot just pay taxes off and consider it closed. That is why the 1099-C form is important if you want to get it over with. If you settle with a CA they will just lie and resell irregardless.

For the person who has negative info over 8 years old. Firstly, call the credit bureaus and ask when it is suppose to come off your credit. If you have proof these are over 7 years old then get an attorney from the www.naca.net. I have butted heads with all 3 CRAs and come out on top every time.

I see your point, but that still doesn't address the fact that it is still unearned income. You may still get letters later from unscrupulous CAs, but that doesn't release someone from reporting the income. In your example, a 1099 is mandatory because it is over $600. BUT even if it was less than $600, you still need to report the income either way because it *is* considered income. A letter from the OC stating the account is PIF is sufficient to stop any further collections with or without a 1099. I would hope that anyone who settles with a creditor would obtain it in writing before paying!!

 

[Goobergal99]

This is so true. A couple of years ago I filed a tax return for my son who had made $580 that year. He got a few dollars back. Why should the government keep what he was entitled to?

Anne

Isn't that the truth, I think alot of ppl fear that if they are being claimed by a parent or spouse then the person claiming them will be hurt because they earned a couple hundred bucks, which is totally not ther case, in most cases you will be do a refund.

 

[Goobergal99]

I guess I should clarify...you are correct of course, but I was working under the assumption that the individual has other income besides the unearned income that may or may not generate a 1099 depending on the amount, thus the need to claim it.

Ahh true..... I get ya now...

 

[picantel]

I see your point, but that still doesn't address the fact that it is still unearned income. You may still get letters later from unscrupulous CAs, but that doesn't release someone from reporting the income. In your example, a 1099 is mandatory because it is over $600. BUT even if it was less than $600, you still need to report the income either way because it *is* considered income. A letter from the OC stating the account is PIF is sufficient to stop any further collections with or without a 1099. I would hope that anyone who settles with a creditor would obtain it in writing before paying!!

a 1099-C form is not mandatory. I settled on an account like 10 years ago and saved like 1k. They never sent the form and I do alot of stuff like this and many people do not receive the 1099-c form. If under $600 it is considered forgiven. If over you need the form which probably 75% of creditors do not bother to send. They will probably just sell it off and make more money to some junk CA like asset acceptance or the other scum trolling the waters.

 

[seashoreCM]

In addition it is a good idea to make the creditor "substantiate the income represented by a 1099 supposedly from a written off debt". The substantiation would consist of a description of the debt and ideally would include the original loan note if any.

You don't want to become connected with a debt that is not yours. You do not have to accept, and should not accept, forgiveness from a debt that is not yours because:

1. That admits that the debt is indeed yours which is not true and which admission you don't want. (A debt cannot possibly be forgiven if it was not valid in the first place.)

2. Accepting forgiveness is the same thing as agreeing to pay about a third of the debt. (This is the average dollar amount of the taxes due.) You should not openly admit to pay any part of a debt that was not yours.

Should the above problem occur you would tell the IRS (after being audited) that the reason for not reporting the income is that the income was not yours and not received, because the debt was not yours. In addition every communication from the creditor including the 1099 would be responded to with a denial of the debt.

********
Don't pay on a settlement (perhaps cents on the dollar) until the settlement is agreed upon on writing. Otherwise the creditor might renege and demand more money.