Quick Answer: A 1099-C helps taxpayers when they’re insolvent (can file Form 982 to avoid taxes), but hurts when they must pay income tax on forgiven debt. When discrepancies exist between reported charge-off amounts like Sabra’s $2369 vs $2574, the IRS has processes to address these reporting errors.
“Dear Steve,
Credit Union charged off the amount of $2369 for a gap insurance loan that had a balance of $1639 but reported to IRS a charge off of $2574. IRS is going after me for not claiming it as income.
How can they have 2 different charge offs and get away with it?
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Dear Sabra,
It’s a mystery.
The first point to consider is if you were insolvent at the time the debt was charged off. If so you could file an IRS Form 982 to avoid the tax due on that debt. See this post.
If you were not insolvent and still have to pay tax on the forgiven debt I would notify the IRS of the discrepancy. They have a process for dealing with such issues.
Please post your responses and follow-up messages to me on this in the comments section below.
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