I just received a 1099-C for a relatively small amount, from Capitol One. My credit has been excellent for years, so I called them to find out where this came from. It turns out it was from a credit card I had in 1986, and which was charged off in 1989. But the official debt forgiveness date is 12/31/2011. I haven't had contact with Capitol One, of any kind, in decades. My question is: isn't there a statute of limitations on these "forgiveness" shenanigans? —Jim
In the 2012 instructions for Form 1099-C that the IRS provides as guidance to creditors, it states:
"A debt is deemed canceled on the date an identifiable event occurs or, if earlier, the date of the actual discharge if you choose to file Form 1099-C for the year of cancellation." In addition to the discharge of a debt in bankruptcy, one of the identifiable events is:
"A cancellation or extinguishment when the statute of limitations for collecting the debt expires, or when the statutory period for filing claim or beginning a deficiency judgment proceeding expire."
So far, so good. It sounds like the 1099-C should be filed if the statute of limitations for the debt has run out. (The statute of limitations is a matter of state law, and varies depending on the type of debt.)
But wait. The IRS then throws in this caveat:
"Expiration of the statute of limitations is an identifiable event only when a debtor's affirmative statute of limitations defense is upheld in a final judgment or decision of a court and the appeal period has expired."
So it appears the statute of limitations only comes into play if the debtor has been sued for the debt, raised the statute of limitations as a defense against the collection of the debt, and the creditor did not appeal the decision.
The IRS then describes another identifiable event: "A discharge of indebtedness because of a decision or a policy of the creditor to discontinue collection activity and cancel the debt. A creditor's defined policy can be in writing or an established business practice of the creditor. A creditor's established practice to stop collection activity and abandon a debt when a particular nonpayment period expires is a defined policy."
This is of no help to taxpayers, of course, because they would have no way of knowing what the creditors' policies are. So let's move on to another one:
"The expiration of non-payment testing period… This event occurs when the creditor has not received a payment on the debt during the testing period. The testing period is a 36-month period ending on December 31, plus any time when the creditor was precluded from collection activity by a stay in bankruptcy or similar bar under state or local law."
Bingo! If none of the other triggers for sending a 1099-C apply, it sounds like the creditor must send one out three years after there has been no payment made on the debt for three years.
But not so fast. The IRS adds another caveat to this one as well:
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