The scammers involved in this story are the same New Jersey couple who recently pleaded guilty to bilking consumers out of millions of dollars with bogus “travel clubs” that promised huge vacation discounts but never delivered.
It goes all the way back to 2009, when the Chase cardholder got lured into signing up for a previous iteration of the scam and paid $4,893 to the “club” operators. When he realized he’d been hoodwinked and that it would be impossible for him to actually book one of the promised vacations, he tried to cancel his membership. The club never refunded his money, so he tried to issue a chargeback through Chase.
At first, Chase said no to the request, but the man was persistent. The bank eventually agreed to a “courtesy credit” worth 25% of the total, and after he eventually got the Newark Star-Ledger’s Bamboozled column involved, Chase agreed to make “an exception” and refund him the entire amount.
That was back in 2011.
Fast-forward to Aug. 2013, the day after the aforementioned guilty pleas were entered. The case on these scammers should be closed; they have been found guilty, confirming everything the cardholder said. The bank should be trying to get their $4,863 from the scam artists.
But instead, the cardholder gets two 1099-C forms from Chase, one for the initial “courtesy credit” from 2009 and the other for the refund of the remainder in 2011.
Chase told the man it viewed these payments as forgiven credit card debt rather than refunds. As such, the bank felt it was legally obliged to report this to the IRS.
The customer obviously disagreed and contacted the IRS to get the agency’s opinion. He says he eventually, after two hours of being bounced around on the phone, talked to an agent who deals with debt forgiveness issues.
“I was told that my position was correct,” the man tells Bamboozled. “Those credits should not be considered income.”
Even after Bamboozled got involved again, the Chase rep who followed up with the customer was not willing to budge.
“She said they have to send 1099s,” recalls the cardholder. “She said that Chase didn’t get the money back from the vendor.”
A Chase rep then confirmed the bank’s stance to Bamboozled, effectively saying that someone owed it $4,893, and since that money wasn’t getting repaid to the bank by the scammers, it was considered a forgiven debt to the cardholder, and any forgiven debts over $600 have to be reported to the IRS.
The question is whether the bank’s position on that topic is correct.
One CPA tells Bamboozled that technically it may be considered a debt because Chase never received payment from either the vendor or the cardholder. But the director of consumer education for credit.com tells Bamboozled that Chase is mistaken in its stance. “This is a refund. It’s not a cancelled debt. It would be different if he took a cruise and paid with his credit card, and then never paid the credit card company.”
Bamboozled, which has been covering these particular scammers for years, contacted another victim who is also a Chase customer. That person not only received a refund but never received a 1099-C from Chase, so obviously the bank isn’t being consistent in its application of the guidelines here.
The 2009 1099-C isn’t an issue, as the statute of limitations has expired. But the 1099-C for 2011, representing 75% of the $4,893, means the cardholder needs to file an amended tax return and possibly pay taxes on the refunded money.
“He should include an explanation with his amended tax return summarizing the fraud,” says the credit.com rep. “It may get popped back to him and he’ll have to provide additional information, so he has to stay on top of it.”
Chase ended up coming to some sort of arrangement with the cardholder, but he could not tell Bamboozled what it was because the bank made him sign a non-disclosure agreement, preventing him from revealing any of the details.
Likewise, Chase will not explain or offer any further insight into the resolution of this case.
Since neither Chase nor the customer is saying what happened or how things got worked out, we’re going to imagine that the bank paid him off with cases of free Chase-branded pens, stress balls, coffee mugs, and baseball caps — all of which he’ll probably receive a 1099 form for at the end of the year.