Fighting Back Against An Incorrect Form 1099-C

If you negotiate away credit card debt, it’s possible that the bank that cuts you a break will issue a form 1099-C, which reports the amount of debt it canceled and could force you to pay more taxes. If you receive such a form, it’s a good idea to look it over and make sure it’s accurate. If it’s not, you may have a battle on your hands. (warning: annoying pop-up ad alert if you click through) walks you through the process of how to dispute the amount on your 1099-C. The first step should be to contact the bank that issued the form. If that doesn’t get you anywhere, you can speak to the IRS and ask how to proceed.

For the best chance of succeeding, come armed with documentation about your debt settlement, including correspondence with dates and figures. If you need more time to work things out, consider filing an extension.

Tax Help: How to Dispute A 1099-C Form [ (pop-up ad alert)] (Thanks, Michael!)


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  1. Blueskylaw says:

    So essentially you go from being indebted to the credit card companies to being indebted to the government. What’s the difference?

    • seth_lerman says:

      Smaller debt. Your IRS debt will should be only 25% to 33% (depending on tax bracket) of the original debt.

      • OutPastPluto says:

        Yes. But that “smaller debt” is now due IMMEDIATELY.

        Also, chances are that the debt in question is due to a usurious level of interest that would be illegal if not for the fact that the corporations seem to be in charge (bankruptcy reform).

    • Hi_Hello says:

      smaller debt with the government.

      • Blueskylaw says:

        Weird how I missed that point. I must have been thinking about what to make for breakfast.

        Or something.

    • GrayMatter says:

      The gubbment’s interest rate is reasonable, they never sneak on extra charges, their repayment schedule is clearly printed.

    • Traveller says:

      Not to mention if you are having debt voided, you are probably insolvent anyway. So you still won’t owe anything.

      Additionally there were exceptions for mortgages on primary residences as well.

      • Nigerian prince looking for business partner says:

        When the state of Pennsylvania forgave $3,000 worth of student loans to soldiers serving in combat zones, 1099s were cut and we had to pay taxes on that amount. There are many people in this situation who aren’t insolvent.

    • damicatz says:

      The difference is the government will use violence against you if you refuse to pay them, much like the Mafia.

    • Difdi says:

      Credit card companies don’t have nuclear weapons.

    • Gerri Detweiler says:

      In some ways it can make sense to classify forgiven debt as income. Suppose you get a credit card with a $5000 limit, run it up to the balance, default and never pay it back. The stuff you bought with that $5000 came to you tax-free. If it were not considered taxable income, then it could quickly become a loophole: “I can’t hire you for this work, but I can lend you the money and won’t go after you if you don’t pay it back.”

      On the other hand, when creditors (the same ones who have brought us the robo-signing scandals) or debt buyers (the same ones that often can’t verify a that a debt is correct, or even owed by the debtor) get these forms wrong, it’s up to taxpayers to try to show it’s not really taxable income.

  2. Bsamm09 says:

    “If you negotiate away credit card debt, it’s possible that the bank that cuts you a break will issue a form 1099-C, which reports the amount of debt it canceled and could force you to pay more taxes.”

    You should still report it if you don’t get a 1099-C. If you were in dire straights you most likely would be insolvent and wouldn’t have to take it into income. Fill out Form 982 and set the statute of limitations clock in motion.

    Depending on what type of debt and if you were personally liable can change things drastically. Had a man come in thinking he owed taxes on $95,000 of COD income. Ended up with a §1231 loss and all COD income excluded.

    • Gerri Detweiler says:

      Sorry – my other comment should have gone to One-Eyed Jack.

      In theory, you are right. Many of these debtors are insolvent. But also remember that

      a. Some of them have no clue that they can claim an insolvency exclusion, and if they aren’t working with a tax professional it can be easily missed,

      b. Some creditors are sending them out for debts that are years – even decades old. Besides the fact that these 1099-Cs for old debts are questionable, imagine trying to calculate the insolvency worksheet after all that time and

      c. The insolvency worksheet requires taxpayers to include assets like home equity, retirement accounts or personal items like jewelry that may be off limit to creditors, but must be included in calculating insolvency.

  3. One-Eyed Jack says:

    Can someone explain to me why forgiven debt can be considered income? In my mind, it’s more like a rebate or a discount. Why income (other than it can be taxed, of course)?

    • damicatz says:

      The con artists that run the federal government will use any excuse to steal more money from you. That’s why it’s considered income.

    • BBBB says:

      “Can someone explain to me why forgiven debt can be considered income?”

      You received something of value and you never paid for it.

      • One-Eyed Jack says:

        That still doesn’t make it income.

        • BBBB says:

          “That still doesn’t make it income. “

          Yes it does. In the same way that if your boss gives you something besides money it is taxable or if you win a prize it is taxable. [There are two ways out of being liable for the tax – claim that it is a gift (It would be hard to convince the IRS that a bank gave you a gift) OR have so little income that the standard deductions keep you at the zero tax level.]

          IRS rules:

          In most cases, if a debt you owe is canceled or forgiven, other than as
          a gift or bequest, you must include the canceled amount in your income.
          You have no income from the canceled debt if it is intended as a gift to you.


          Bonuses or awards you receive for outstanding work are included
          in your income and should be shown on your Form W-2. These include
          prizes such as vacation trips for meeting sales goals. If the prize or
          award you receive is goods or services, you must include the fair market
          value of the goods or services in your income.


          you must include in your income the fair market value of bonds,
          cars, houses, and other noncash prizes.