Terry O Posted April 11, 2010 Report Share Posted April 11, 2010 This just in my inbox from a client - -had anyone experienced this situation? "I have a question. A couple weeks ago we received a letter from the IRS stating that there is a discrepancy in our stated income from our 2008 income tax return. It seems that one of our credit card companies reported approx. $9000 in income without sending us a 1099. We had been disputing this amount and it never was resolved. They must have just written it off and then reported it as income. We were working with a company in regards to our credit card balances and they have told us that Citibank reported a lot of these in error to the IRS. That, in fact, since we did not settle with them and it was in dispute the entire time Citibank should not have reported it as income. They said the only thing we need to do is send a letter to the IRS stating this fact. My question to you is: Does this advice sound right to you. Is this a fact that if we never settled with them that we shouldn't have it considered as income on our tax return?" THANK YOU ALL for a wonderful educational tax season again! Quote Link to comment Share on other sites More sharing options...
jainen Posted April 13, 2010 Report Share Posted April 13, 2010 >>the only thing we need to do is send a letter to the IRS.... Does this advice sound right to you.<< Pretty much. You disagree with an IRS position so the sensible thing to do is disagree with it. The letter you received from the IRS probably has instructions for several ways you can respond. I would guess, however, that the issue will quickly go beyond your understanding, and with that much money in question it may be worthwhile for you to engage a tax professional to resolve the matter with the IRS. I would further guess that you are going to lose anyway--as you already know, it's hard to fight a bank. Quote Link to comment Share on other sites More sharing options...
Terry O Posted April 13, 2010 Author Report Share Posted April 13, 2010 Thanks Jainen, I misspoke - -it was CHASE bank -- and here is THEIR reply to the taxpayer - - -go figure !!! REPLY FROM CHASE BANK: > That 1099-C is not applicable to your situation. > > 1099-C is only valid if a loan has been forgiven - because you have > done an actual settlement. > > That is not the case here, as the loan was in dispute. When a loan is > disputed, they are not to 1099-C you. And if they do, generally one > just sends it back to the IRS, explaining it was sent in error. The > account was not settled. It was in dispute and they got rid of it - > on the basis of the fact that the debt was not valid. > > But, if you did a settlement plan - you would then pay taxes on the amount > forgiven. But, nothing was forgiven here. It was put in dispute - and > there is therefore no debt to settle. > > Chase mistakenly sent these forms this year to all whose accounts they charged > off, apparently, in error - regardless of the reason they were charged > off. They > are not to be sent to those whose accounts were charged off in > legitimate dispute, > but they obviously did. This is why you did not receive 1099-C forms from all > of your accounts that were charged off - because your other creditors > did not make > the same mistake. > > But, we don't give tax advice. You should check with your tax preparer. > You may show him or her this Email, if you like. > > Here are some sites to look at in regard to this. The first will explain your > situation a little past the middle of the page down under the heading > "Disputed Debt Doctrine". Note, your debt is not legally enforceable > because it has been charged off in dispute. > > > http://en.wikipedia.org/wiki/Cancellation_of_Debt_(COD)_Income > > > Also, this second link explains more about the "Disputed Debt Doctrine". > > > http://www.bankrate.com/brm/itax/news/20030303a1.asp > > > On this page, among other things, you will read: > > > "You don't have to report debt forgiven as income if you contest the liability. > If your debt settlement is achieved because you protest an owed amount, the > forgiven debt is excluded from the DOI rule. Some people encounter this > situation when they dispute credit card charges. For example, MasterCard > contends you owe $1,000 but you didn't buy those Ferragamo shoes. The > debate rages on for weeks. Finally, to put an end to the quibbling, you offer > to pay $200 and MasterCard says OK. That $800 difference is a settlement > of contested liability, and you're not liable for taxes on it." > > > A simple note on a piece of paper attached to your 1040 identifying > this 1099-C > as one sent in error - and mentioning the very real fact that Chase > reportedly sent > these to inapproprate accounts this tax season - should suffice as an > explanation as to > why you did not include that 1099-C in computing your income for that tax year. > > Check with your tax preparer, and make sure he or she realizes that the debt > was officially disputed, and it was written off by your creditor on that basis > - because it was not valid. And again, feel free to share this Email > with him or her. > > Allen > CMS > Quote Link to comment Share on other sites More sharing options...
grandmabee Posted April 13, 2010 Report Share Posted April 13, 2010 any they don't give tax advise !! Quote Link to comment Share on other sites More sharing options...
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