What to do if you get a 1099c from a Debt Collector – 3949a – CreditRage Uncut 17


It is tax season again. And if you have been fighting debt collectors, they may have a dirty trick in store for you.

Often debt collectors will consider any payment to you as income for you. If you sent the collector a w9 when you settled with them, there is a good chance they will send you a 1099c at the end of the year.

Another situation could be that they write off the debt and forgive the debt. They then report the debt fogivenees as income to you. The debt collector reports the debt forgiveness to the IRS so they get their business loss… then you get a 1099c!

Here is what I do when I get a 1099c from a debt collector:

Let me know if you have any questions. I am always here for you even if I dont have a recent post.

Fight the essential fight, Boiler

    • Yes I would. One a debt is disputed, it remains in dispute until it is proven up. I would never consider a debt dispute resolved as debt collectors never have solid documentation and someone that can verify the documentation with first hand knowledge. Hope that helps. If not, let me know. Also, please let me know how this works for you.

      Boiler Williams

  1. Tentatively I agree with only some of your reasons for filing 3949A. A 1099C not issued by an original creditor but a subsequent collector or debt buyer is on mushy ground already, tantamount to hearsay, and should be challenged if the alleged debt was in dispute and the third party agency cannot or never did prove the debt claim was valid. People who get a 1099C instead of debt validation after a proper written dispute should absolutely hit the roof and fight back.

    However, a consumer volunteering payment to that collector at whatever discount can be seen as tacitly agreeing that the full amount was correct and enforceable. In that sense the unpaid remainder is income. The 1099C issuer is in fact obeying the law whether or not the taxpayer wants to view that as a spiteful act. We do want to examine the filing skeptically. For instance, a forgiven principal balance is subject to tax but not its accrued interest. A debt collector fudging that fact probably should get busted with that 3949A if it doesn’t cure the error when notified.

    Now to the issue of taxing the pounds of flesh won from corporate defendants …. Your confident declaration that “settlement is not income” is a dangerous generalization. Everything I am reading points to claims deriving from personal physical injury and sickness as the only path to exemption, barring of course a pile of exceptions and “but ifs” irrelevant to our private policing of debt collection. Even emotional distress must derive from physical injury and must be substantiated by medical expenses.

    Much as I would like another tool in my Litigious Consumer bag, I am not convinced that whistleblowing alleged tax fraud by a loser company won’t turn the 3949A into a “Please Audit Me and Investigate My Perjury” form. Please cite the Internal Revenue Code which excludes settlements of consumer law claims from taxable income.

  2. Hi – in regards to the first question in which the debt was disputed, proper validation and verification of the debt was requested – yet ignored – what would be the proper verbiage to use in the comment section of the 3949 form?

    And – as the last poster asked – are we opening ourselves up to an audit?

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