Author Topic: Received a 1099 from Citibank for a private student loan and am a bit confused..  (Read 663 times)

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ironfist

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My wife took out three private student loans (15K, 13k and 8k) from Citibank and defaulted in 2008. Discover (which bought Citibank's student loan business) sued her for the 15k loan and won a judgment. We haven't heard anything about the other loans in awhile, although a few years back we routinely chased collections agencies away with validation requests... they'd validate and then nothing... until we'd hear from a different agency on the same debt.

Wife was served with a lawsuit for the $13k debt over a year ago. Here in MN, the lawsuit starts when the party being sued is served - it doesn't have to be filed with the court at that time. Roughly a year after the papers were served, we received a letter from the collection agency saying they would not be pursuing the lawsuit. According to state law, you have to actually start the lawsuit (as in file with the court) within a year from service. Obviously, nothing happened.

We just received a 1099 from Citibank for the amount of the loan.

I understand what that means - they canceled the debt and reported it to my wife as income.  However, I found the whole thing strange. First, I thought Discover had bought Citi's student loans. Why did she get the 1099 from Citi? It also puzzles me why we didn't hear anything until a 1099 just randomly showed up in the mail. Has anyone else had a debt simply canceled in its entirely by the creditor randomly and without explanation?

chester474

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Wait until - and if - you hear from the IRS.

I have been sent 1099's from debt collectors when I've won FDCPA cases.

I've always ignored the 1099's, figuring the judgment awards were not income, but "compensation for an injury."

I've never heard from the IRS on my not reporting this alleged 1099 income.

If they do get you for the taxes one can go bankrupt on taxes if the entire amount has been due and oweing for 10 or more years - or so I've heard.

Time is on your side.

It sounds like a "non-problem."

Leave it alone and it might go away.

Sometimes it's best not to ask questions.

We are indeed blessed in Minnesota by our so-called "hip-pocket" service rule.

I suppose it's called that because you produce the Summons out of your "hip-pocket" rather than obtaining it from the Clerk of Court.

This means a lawsuit can be started in Minnesota without paying a filing fee.

You don't need to go to the Clerk of Court - where you have to pay the filing fee - to get your Summons.

I have heard Minnesota is the only state that has this rule.

It is a good rule

Some debt collectors don't realize they've been sued as they don't see a court case number on the Summons or the Complaint.

Then I get a Judgment by Default and the Judge will sign anything.




Flyingifr

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Follow Chester's advice at your own peril.

Wait until - and if - you hear from the IRS.

I have been sent 1099's from debt collectors when I've won FDCPA cases.

I've always ignored the 1099's, figuring the judgment awards were not income, but "compensation for an injury."

1099s for a FDCPA violation are NOT "compensation for an injury" according to the IRS - they are Statutory Financial Damages which are fully taxable unless exempted under other sections of the Internal Revenue Code, such as Section 108. I refer you to the IRS audit guide for Lawsuits, Awards and Settlements which I have attached. Pay attention to the section labeled "Tax Treatment of Awards and Settlements" on page 4.

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I've never heard from the IRS on my not reporting this alleged 1099 income.

Then count yourself lucky. Either that or the 1099 was sent to you alone and not the IRS. I have seen IRS CP-2000 letters by the bushelbasketfull concerning Cancellation of Debt. But what do I know, I'm only an IRS licensed Enrolled Agent with 35 years tax experience.

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If they do get you for the taxes one can go bankrupt on taxes if the entire amount has been due and oweing for 10 or more years - or so I've heard.

Then you heard wrong. It is the longest of:

3 years from he due date of the return, or
2 years after the filing date, or
240 days after assessment.

The 10 years is the Collection Statute Expiration. If the tax debt is unpaid 10 years after assessment it is no longer owed under SOL unless the Statute was extended for some reason.

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Time is on your side.

It sounds like a "non-problem."

Leave it alone and it might go away.

Tax issues do not go away so easily. It is always bet to address them timely.
BTW-the Flyingifr Method does work. (quoted from Hannah on Infinite Credit, September 19, 2006)

I think of a telephone as a Debt Collector's crowbar. With such a device it is possible to pry one's mouth open wide enough to allow the insertion of a foot or two.

Debtors Exams are the perfect place for us Senior Citizens to show off our recently acquired Alzheimers.

Founder of the Credit Terrorist Training Camp (Debtorboards)

ironfist

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Thank you for the replies everyone.

I'm not concerned about paying taxes for the 1099. Right now we're a single income household (mine) with a child that was just born in February. I fully plan on reporting it on our taxes, and since we don't make a whole lot of money for a family of three, it's doubtful that we'll take that much of a hit.

It just seems strange, that's all. First, I thought that Citi sold off their student loan business, so it surprises me that they're the ones that gave the 1099. My wife had three Citi loans total, one of which she was already sued for by Discover (Discover bought most of Citi's student loan business).

Honestly, I expected her to be served yet again for this loan by Discover Bank, and have them go through the process. I also expect (still do) Discover to eventually sue her over the 3rd loan. Getting this 1099 for the $13k loan was totally out of the blue.

I just feels weird that it's over for this particular one. I wonder what made Citi decide to cancel the whole debt rather than sell it or whatever.

Bruno the JDB Killer

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FlyingIFR will bring us up to speed on this nuance, but as I recall, IRS guidelines state that if a debt is charged off, it is still collectible. Chargeoff is an accounting thing.
I am not an attorney. Any information I post is strictly my opinion and should be treated as such.

ironfist

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Isn't "charge off" typically a term for when a creditor moves the debt from the asset column to the loss column, signaling it's unlikely to be collected? I'm thinking that's different than this situation, as the upper-right-hand corner of the 1099-C says in bold letters "Cancellation of Debt."

Box 2 gives the amount with the title "Amount of debt discharged", and box 6 lists letter G as "identifiable event code".

On the back of the 1099-C, the "instructions for debtor" have box 6 say "Shows the reason your creditor has filed this form... G - Decision or policy to discontinue collection".

https://www.irs.gov/uac/about-form-1099c

From what I'm reading on the IRS website, it looks like its over for this particular debt. Again, I'm not worried about reporting this 1099 on our taxes. I guess I'm just not used to victories like other DB members are. It feels a little strange, to be honest, like it's not really over.

Bruno the JDB Killer

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It's not legally over until the SOL expires. As you said, charge off is according to regulation. You can read it here.


https://www.fdic.gov/regulations/laws/rules/5000-1000.html
I am not an attorney. Any information I post is strictly my opinion and should be treated as such.

ironfist

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Hmm, I see that. It does raise the question then - why is it reported as income on a 1099 if they can still collect? For example, let's say the continue collection activities and end up collecting the entire balance. Wouldn't that run afoul of what they reported to the IRS? If a debt is paid, it certainly couldn't be considered income to the debtor.

CleaningUp

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They would have to resurrect it on their books and pay taxes accordingly.

ironfist

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I must say that the IRS' phone menu is a near-impenetrable barrier to getting help. They make Comcast look like amateurs. Nothing like going through five different menu selections, each with at least four options, only to have the pre-recorded voice tell you that everything is on the website and to hang up.  1214  :vbrofl:

Anyway, I got advice from our IRS friends. The 1099 *should* mean that the debt is truly cancelled by the OC and not collectible. This was a change in the old "36 month rule" that they implemented in 2016. They had issues of creditors issuing 1099-Cs after three years of non-payment, which lead to the debtors thinking the debt had truly been cancelled. Of course the OC would often still try to collect the debt and/or sell it, which means the debtor should not have recorded it as income in the first place. After all, you can't have "cancelled" debt imputed as income when they're still trying to collect said debt. It was confusing - you get a 1099-C, but you may or may not have to report it.

https://www.irs.gov/irb/2016-48_IRB/ar06.html

Their advice was to check with the creditor to make sure (if Citi still intends on collecting or selling the debt, they must rescind the 1099-C), but I don't know if I'm in any hurry to do that.

chester474

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Thanks for the advice.

I should be more careful and give advice on stuff I really know.

I've ignored 1099's I've received from attorneys for collection agencies when I've settled Fair Debt Collection Practice Act (FDCPA).

Most of the time I never get a 1099.

I guess I've been lucky!