By Eric Olsen, Executive Director, HELPS Nonprofit Law Firm
At this time of year, creditors sometimes send out what is called a Form 1099-C. They email it to the Internal Revenue Service (IRS) and copy the person who owes them debt. The form tells the IRS that they, the company who is owed the debt, has tried (unsuccessfully) to collect and the unpaid debt is now "written off."
Seniors are often told by their tax preparers that they now have to pay taxes on the debt contained in the 1099-C, as it is now considered income they received. This is almost always NOT the case and I shudder to think of all the taxes that have been paid because of a 1099-C when it wasn't necessary.Often, you don’t have to pay if you know what to do.
The rule is that to the extent a person is insolvent, meaning their debts exceed their assets, they DO NOT OWE TAX. IRS Form 982 -- Reduction of Tax Attributes Due to Discharge of Indebtedness -- can be filed with a tax return, using row 1b of the form to report that the senior is insolvent and therefore unable to pay tax.
Sometimes seniors forget about certain debts they still owe because the debt is old or otherwise. Some seniors may also overestimate the value of their assets. Seniors who don't file taxes may forget about a 1099-C they received months ago.They will likely never hear from the IRS.A Form 982 can be filed later if you get a notice that you owe taxes because of a 1099-C.
Even if a senior were to owe taxes, lower-income seniors can obtain "Currently Not Collectible" status with the IRS. HELPS assists our clients with that every single day. HELPS will send any senior a letter explaining what to do with a 982 form if they were to get a 1099-C. If you are still filing taxes and you received a 1099-C, the tax preparer helping you should know about Form 982. If they don't know about Form 982, they need to learn about it, or you need a different professional to help you.
HELPS protects seniors from unwanted collector contact nationwide. We turn no qualified senior or disabled person away that needs our help. Call 855 435 7787 or visit www.helpsishere.org.
Get your Refund Fast and File your Taxes for Free.
Originally Posted at: https://www.moneytips.com/how-seniors-should-handle-a-1099-c