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Capital One Sued Me and Lost But Issued Me a 1099 and Now I Have to Pay the IRS. – Paul

By on December 31, 2012

“Dear Jim,

Capital one sued me on a debt and it was dismissed without prejudice , they didn’t show up. about 7 months later they sued me again. this time i hired a lawyer and it was dismissed with prejudice. they can’t sue me again..yay. now almost a year later. i get a letter from IRS saying i owe back taxes for a forgiven debt.

my question. do i really owe tax on a forgiven debt? i beat them in court. they sued me and lost. they didn’t forgive anything.

Paul”

Hi Paul:

Thanks for your question. Forgiveness of indebtedness is income. You may qualify not have to include it as taxable income if you qualify for one of the relief provisions (the most likely consumer debt relief is due to insolvency).

However, you must report it. If you qualify for relief, you would include Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, with your return.

Unfortunately, winning in Court is not relief from the IRS.

Thanks

Jim

Jim Buttonow is one of the resident debt experts here at GetOutOfDebt.org that helps people for free. Jim is a licensed CPA who spent 19 years with the IRS coordinating large compliance teams of IRS agents and specialized personnel. In the last 5 years, Jim has invented consumer and practitioner software and treatises on how to address many different tax issues. He has also represented many people before the IRS examination, collection, filing, and appeals functions. He currently assists taxpayers on an active pro bono tax practice aimed at serving people in need. He can be reached at IRSMind.com.

If you have a tax question you’d like to ask just use the online form. I’m happy to help you totally for free.

READ  Don’t Overlook the Insolvency Exemption for 1099-C Cancelation of Debt Income

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About Jim Buttonnow

Jim Buttonow, CPA/CITP, practices in the area of IRS and State tax controversy. He has more than 29 years of experience in IRS practice and procedure. Reach Jim at jim@buttonowcpa.com.

5 Comments

  1. Brooke2k

    February 8, 2013 at 12:54 am

    Hi, I got two 1099C one was to my Husband and the date of event was April 2012 almost three years after his death. Mine was dated Jan 31 2012 for a debt that I took to court and proved I had already paid the debt (Their first statement as evidence had a 3000.00 balance on it) IT was dismissed with prejudice, a year later and more in attornies fees than I want to discuss. I paid Cap One what I offered them at begining of the suit, the charges after the 3000.00 which were 1500. ( we setteled prior to court and my attorney had them write a letter to the court for the dismissal). That was in 2010 yet my date event is Jan 2012 for$ 2000., I have already filed my taxes and I just received this today. ( I am applying for my daughters college so I needed my taxes done). I tried to call Capp one but I was given the runaround. What is my next step?

  2. Poster

    February 2, 2013 at 9:11 pm

    Seems to me that Paul has a strong argument here. The creditor seeked relief in the repayment of a debt between two parties. The court adjudicated the matter and determined that Paul did not owe Paul any funds according to his state’s law.

    Imagine if the tax court ruled that Paul had to pay taxes on the debt:
    Anyone sued in court for a debt could end up with a tax liability for whatever amount the plaintiff seeks whether it’s correct or not.

  3. Pingback: Capital One Sued Me and Lost But Issued Me a 1099 and Now I Have to Pay the IRS. – Paul | debttips.co.za

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