1099C for Deadbeat Clients

[Jiggers]

Can I issue a 1099C to a deadbeat client who stiffs me on my fee?

[les grans]

No, it's not allowed.

Unless you're a lending or financial institution, I think that you're *not* allowed to issue Form 1099C.
Like, if you do send one out, the "stiffer" might feel harassed and picked on. But that's what you want him to feel like, right?
The instructions to the 1099C are very clear that only lending companies and "big huge" financial institutions are allowed to use the form.

[erchess]

Other Options

You may be able to report him to a credit reporting agency and possibly to all three. I am sure that each one can explain the rules and procedures to you.

You may be able to bring in a debt collector either by paying the firm a fee for its efforts or by selling the debt to a collector.

But be careful and check with a lawyer and whatever Prof Associations and Regulatory Authorities may affect you. I could not do any of these things unless I efiled the return or provided a mailing copy before getting paid or I got paid with a bad check or funny money. That is because I choose as a marketing tool to guarantee that when I am done the client will be satisfied with the return and the fee. If we cannot work out agreement on that, then I have labored in vain.

[VT-EA]

Duty to tell

Is there a duty, as a tax professional, to tell "deadbeat" he has had a "tax event"?

From Pub 525
Generally, 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. A debt includes any indebtedness for which you are liable or which attaches to property you hold.

The 1099C instructions list "Who must file". It would seem very odd for the IRS to say in effect, "Don't tell us about a taxpayer's increased wealth (forgiven debt)". I doubt the instructions limit who may file a 1099C.

[les grans]

Let the doubt be removed.

Here's what the 1099-C instructions say. Note the word *only* [emphasis added there] in the first paragraph which would seem to remove all doubt about who's required, and who's allowed, to file the form....


Specific Instructions for Form 1099-C
File Form 1099-C, Cancellation of Debt, by February 28, 2008 (March 31, 2008, if filed electronically), for each debtor for whom you canceled a debt owed to you of $600 or more *only* if:

You are an entity described under Who Must File below and

An identifiable event has occurred. It does not matter whether the actual cancellation is on or before the date of the identifiable event. See When Is a Debt Canceled on page AC-3.

Who Must File
File Form 1099-C if you are:

A financial institution described in section 581 or 591(a) (such as a domestic bank, trust company, building and loan or savings and loan association).

A credit union.

A federal government agency including:

A department,

An agency,

A court or court administrative office, or

An instrumentality in the executive, judicial, or legislative branch of the government, including government corporations.

Any of the following, its successor, or subunit of one of the following:

Federal Deposit Insurance Corporation,

Resolution Trust Corporation,

National Credit Union Administration,

Any military department,

U.S. Postal Service, or

Postal Rate Commission.

A corporation that is a subsidiary of a financial institution or credit union, but only if, because of your affiliation, you are subject to supervision and examination by a federal or state regulatory agency.

Any organization whose significant trade or business is the lending of money, such as a finance company or credit card company (whether or not affiliated with a financial institution). The lending of money is a significant trade or business if money is lent on a regular and continuing basis. Regulations section 1.6050P-2(b) lists three safe harbors under which reporting may not be required for the current year. See Safe harbor rules below.

[fliszt]

It makes me

feel better when I write a letter to the IRS outlining the client name, address and what he owed me for tax prep fees and then sending a copy to the EXclient.

[erchess]

Rofl

I'm sure you actually do just that.

[DaveO]

I did the 1099-C trick years ago.

I was helping to wind up the operations of a publishing company that had been sold. We had A/R dating back three years. In an effort to collect what was left we sent out a letter staing that we would accept $.XX on the dollar otherwise we were going to file the 1099-C. That letter generated more response than any collection effort in the past had. We collected a good chunk of the outstanding A/R.