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1099-C Received from “Servicer”

by Neil Garfield | December 26, 2018

My personal take on this is that borrowers who receive this form for “forgiveness of debt” should probably send a letter or form of contest to the IRS stating the objection to the filing of the 1099-C. The objection or contest should state, in most cases, that this has been filed by a party who had no right, title or interest in the loan and that the form is not indicative of any final resolution of the debt, which is owned by third parties unrelated to the filer.

One of my favorite legal research firms just published a short blurb on the subject:

The Lawletter Vol 43 No 7 Charlene Hicks—Senior Attorney, National Legal Research Group

To date, no consensus has been reached among courts throughout the United States on the question as to whether a creditor's issuance of an IRS Form 1099-C results in the extinguishment of the reported debt in favor of the debtor. Form 1099-C bears the title "Cancellation of Debt," and, according to the IRS, a creditor should issue this form to the debtor for any year in which a debt is cancelled. Depending on the state in which the debtor resides, a creditor's issuance of a Form 1099-C may have the effect of barring further collection efforts and of completely discharging the reported debt. The two divergent approaches taken by courts on this issue result in opposite outcomes. The majority approach is illustrated by the Fourth Circuit's opinion in FDIC v. Cashion, 720 F.3d 169 (4th Cir. 2013).

My opinion is this: if the filer had no right to collect or enforce it follows that it had no right to cancel the debt. This ploy is enabling hundreds of companies to take tax deductions costing taxpayers billions of dollars. Meanwhile recipients of these fabricated forms with false information are stuck wondering whether they now owe tax on debt forgiveness. I think they don’t owe anything and that after they file a letter of protest or objection, the false income on the 1099-C should be ignored.

 

 

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