1099-C Liability was Paid

[Snaggletooth]

Alice (not her real name) owed ABC Bank $2200.00 and didn't pay the bank, so they sent her a 1099-C for $2200.

They turned the debt over to a collection agency, who billed Alice $2500. She paid the collection agency $2500.

Is she obligated to show the $2200 on 1099-C as income?

[kathyc2]

Do you have proof that the 2,200 and 2,500 are for the same debt? Quite possible that the original debt was more than the 2,200 but that was the amount determined uncollectable after the 2,500 payment.

[Snaggletooth]

Thanks Kathy - Client confirms that it was the same debt, after the collection agency added further fees. On matters such as this, I depend on what the client tells me without asking for additional proof.

[kathyc2]

I don't know that I would put a lot of faith in what someone that doesn't pay their debts tells me.

[rbynaker]

There are plenty of "collection agency" scams out there. If the bank actually got paid they should correct the 1099. There should be a phone number on the form to call.

[RWG1950]

When you rely on what the taxpayer "tells you" and not have the docs in the file to back yourself up,
you are asking for trouble.

[Snaggletooth]

I don't know that I would put a lot of faith in what someone that doesn't pay their debts tells me.

The non-payment of this client is an aberration. Long-time client who has had a miserable turn of events the last couple of years. The best of people often are not economically savvy to prepare for bad years when they occur. Years ago I had a year of misfortune myself, and took me a couple years to recover - ultimately, all of my creditors were paid, satisfied, and wanted to continue to do business.

[Rapid Robert]

When you rely on what the taxpayer "tells you" and not have the docs in the file to back yourself up,
you are asking for trouble.

Can you elaborate on what "trouble" you are referring to? The paid preparer should be alert for information that appears incomplete, incorrect, or inconsistent. Beyond that, you can have a good faith reliance on information provided by the taxpayerl

[Snaggletooth]

Can you elaborate on what "trouble" you are referring to? The paid preparer should be alert for information that appears incomplete, incorrect, or inconsistent. Beyond that, you can have a good faith reliance on information provided by the taxpayerl

Sorry, RR, I'm not going to elaborate on personal issues, even if you don't know my client. common issues are divorce, illness, loss of a loved one, bad weather, business failures, etc. that are not the result of moral turpitude.

I do not "audit" my clientele by digging into every issue. However, I do agree with a years ago IRS directive to create issues if "two of three preparers" would cast doubt on the veracity. The tax preparer community complained that the directive was not in the best interest of the occupation, further that a preparer could not possibly know what other preparers think. However, I think it would be obvious to any sane preparer when encountering a set of facts that are inconsistent and potentially lacking in veracity.

[Rapid Robert]

Sorry, RR, I'm not going to elaborate on personal issues,

I never asked you to. My comment was clearly directed to RWG1950 who was asserting some unspecified "trouble" for the preparer if they didn't audit the client above and beyond what the law requires.

I have re-read my my recent comments in this and other threads, and the words still seem to be the same as what I wrote. Yet other participants such as you and kathyc2 seem to be reading something else that I didn't write. I can't figure it out.

[Snaggletooth]

Yet other participants such as you and kathyc2 seem to be reading something else that I didn't write. I can't figure it out.

RR, you love to take everyone to task for participants who post here. I would love to see you and Kathyc2 go at it. " Clash of the Titans..." I would hire a girl to walk around and hold up big numbers between rounds. I will give Kathyc2 credit - she does respond with accurate answers to questions while going through her analytical diatribes.