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 9…