Cancellation of debt

[oceanlovin'ea]

Had a very upset client yesterday. They received a 1099-c from Bank of America for cancellation of debt. They had no idea why they got the form but they did bring it to me. The bank raised their interest rate from 7% to 32%. They worked out a deal with them to pay off the principal and they cancelled the interest (overcharged interest as client says).

They had no idea that this would be considered income to them. He said he wasn't going to put it on the return. He was really upset. His wife told him they had to put it on the return. I told him if he didn't he would just get a letter from the IRS and then would have to pay the taxes plus interest and penalties. So he backed down.

They are positive this was not explained to them.

Linda F

[BOB W]

Had a very upset client yesterday. They received a 1099-c from Bank of America for cancellation of debt. They had no idea why they got the form but they did bring it to me. The bank raised their interest rate from 7% to 32%. They worked out a deal with them to pay off the principal and they cancelled the interest (overcharged interest as client says).

They had no idea that this would be considered income to them. He said he wasn't going to put it on the return. He was really upset. His wife told him they had to put it on the return. I told him if he didn't he would just get a letter from the IRS and then would have to pay the taxes plus interest and penalties. So he backed down.

They are positive this was not explained to them.

Linda F

Banks or collection agencies never inform the person. I had one collection agency tell a client that they don't issue one for any amount under $5,000> they lie when they are confronted with a1099C being issued.

[veritas]

I would imagine

the banks are just doing what we wish we could do when someone skated on us.

[geekgirldany]

I've had the same deal with a customer. This goes back to 2004 tax year though.I think I posted on here about it. Customer was told it would not be reported on a 1099C. This has still not been resolved. Customer can't understand why I can't just call the IRS and tell them it was a mistake.

[les grans]

I always thought that renegotiated interest is *not* taxable income.