We are trying to negociate 50,000 credit card down to 25,000. Is it true that you need to pay taxes on the amount settled to the IRS. See post below:
"Do you have the settlement amount in full? When you try to negotiate settlements, often times you need to have enough
funds to make large payments. Additionally, be aware that any "forgiven" debt by the OC is considered taxable income by the IRS"
March 1st, 2010 at 7:00 pm
The IRS has just issued a new publication 4681 to cover this issue.
March 1st, 2010 at 7:00 pm
It is correct. It is considered income. Technically the debtor should send you a 1099C. If they dont then the IRS wont know. Credit cards rarely report. If a car is repossessed they will. Home foreclosure will.
March 1st, 2010 at 7:00 pm
yes you must report forgiven debt as income in the year it was forgiven.
the credit card company will deduct that amount so that they dont pay tax on it.
so, there will be a discrepency if you dont report it and you will get a notice from the irs.
March 1st, 2010 at 7:00 pm
No, you do not.
By law you do not need to report nor you have to pay any tax. Unless your income comes from the sale or distribution of Fire Arms, Tobacco or Alcohol, you do not need to report any taxes as according to the US Law, the tax from any other source is of VOLUNTARY COMPLIANCE. Do not brake this law. In most civilized countries, braking the law is criminal offence.
Call your local IRS Office and ask them. They will have no choice but to confirm this law. Record their answer on the dictaphone or a tape recorder for your future reference.
March 1st, 2010 at 7:00 pm
Any debt that you don’t pay back is income. You borrowed the money and used it for whatever purpose. You should have to pay it back in full plus interest.
March 1st, 2010 at 7:00 pm
Not all of the decrease is going to be cancellation of debt income. Some will undoubtedly be due to a renegotiation of interest rates and finance charges.
In addition, there are a couple of huge exceptions to the general rule.
1) If the settlement was made as part of a bankruptcy case.
2) If the cancellation took place while you were insolvent, the cancelled debt is not income to the extent of the insolvency. "Insolvent" in this context means that your debts exceeded your assets.
March 1st, 2010 at 7:00 pm
The discharged part of the debt will be taxed as ordinary income unless you are insolvent.