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Tax Help: How to Dispute A 1099-C Form

In 2006, “Anne” and her husband negotiated a settlement on credit card debt of $7,500 with one of the country’s biggest banks for roughly $2,900, wiping out just over $4,500 in debt. But just recently, the couple received a 1099-C from the credit card issuer reporting $16,000 in cancelled debt for the 2011 tax year. Both the amount and the dates are wrong, contends Anne (which is not her real name). Even though she has a copy of the settlement letter from the bank spelling out the terms of their agreement six years ago, a bank representative refuses to correct the 1099-C. stating that her husband had a separate credit card debt that triggered the form. Anne says that’s not true. “What can I do,” she asks?

Her story raises and important issue: what are taxpayer’s rights when lenders send 1099-C forms that are in dispute?

Start by trying to get the company that issued the 1099-c to correct it, advises Scott Tufts, a board certified tax lawyer with the Tufts Law Firm in Maitland, Florida. “The smartest move is to go to the source, even through the bureaucracy of the company. Document your reason for disagreement with the form,” he advises.

But as Anne’s story illustrates, getting through bank bureaucracy doesn’t always work. She said that after the bank representative refused to help, she told him she would be hiring an attorney to help her. “He ‘transferred’ me to another department, and the phone disconnected!” she told us in an email.

“What the IRS tells you to do is to call the bank to get it corrected but if you’ve ever talked to the bank, you know how far that’s going to go,” says Edward Zollars, a CPA and partner with the tax practice of Thomas, Zollars and Lynch in Arizona. “It’s kind of a mess,” he warns.

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Cancelled Debt Isn’t Always Cancelled

I’ve written a series of articles about 1099-Cs and 1099-As. but to recap, these forms are used by lenders report cancellation of debt (COD) income to the IRS. The IRS generally considers cancelled debt to be income and it’s up to taxpayers who receive these forms to either include that amount in their income when filling out their tax returns, or demonstrate to the IRS why the amount should be partially or completely excluded.

The term “cancelled debt” in itself may be misleading. While these forms are sent to consumers who have negotiated settlements on debts for less than the full balance, or who have negotiated short sales on their homes, the IRS also requires that lenders notify them when there has been no significant collection activity on a debt for 36 months. The creditor may still decide to try to collect the debt at a later date, even though a 1099-C has been sent.

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Gerri Detweiler is's Director of Consumer Education. She focuses on helping people understand their credit and debt, and writes about those issues, as well as financial legislation, budgeting, debt recovery and savings strategies. She is also the co-author of Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights . and Reduce Stress: Real-Life Solutions for Solving Your Credit Crisis as well as host of More by Gerri Detweiler

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What about for a 1099-C for an invalid debt? I have a collector threatening to send a 1099-C for a debt with a bank I never had an account with. I don’t know if they will send one or not (have not yet). But if they do, I want to know if there is an easy way to me to “cancel” the 1099-C through the IRS, or if I have to sue the collector.

That’s a valid question, Phil. The short answer is there is no “simple” way to dispute a 1099-C. There is no place on Form 982, for example, where you can tell the IRS to exclude that debt from your income because you don’t believe you owe the debt. So, as I pointed out in the story, you have to include it on your tax return, back it out, and include an explanation.

I would report this threat to the FTC and Consumer Financial Protection Bureau. You may also want to consumer talking with a consumer law attorney. Their threat may be an illegal debt collection tactic.

I received a notice from the IRS in May 2012 saying I owe for tax year 2010 on a 1099-C I never received. I called the bank to inquire on what it was for and was advised a car that was repossessed in April 2003 9 years ago. Is there a Statute of Limitations on when a collector has to issue a 1099-C? How can they say it is income when no one sent me money? I was a single mom with 3 kids lost my job which is why I lost the car so if I could barely put food on the table and a roof over our heads how can I be expected to pay $2784 for a debt over 9 years ago?

Gerri Detweiler

I understand this is a very stressful, But you may not have to pay taxes on that cancelled debt, so don’t panic yet. However, you may have to pay for a tax professional’s help to sort this out.

I am not a tax professional, so I can’t give you specific advice. But I can share some of the information I’ve learned writing my series on this topic. There is no “statute of limitations” per se that prevents a creditor from sending out a 1099-C after a certain date, but on the flip side, they are supposed to send out a 1099-C the year the debt was cancelled or – if it wasn’t formally cancelled through a settlement, for example – within three years if no substantial collection activity took place during that time. So, provided they weren’t actively trying to collect after April 2003, then it sounds like they should have sent out the 1099-C for the 2006 or 2007 tax year. Because they waited until 2010, it may mean the statute of limitations for the IRS to collect tax on the

cancelled debt may apply.

In addition, if you received the 1099-C when you should have, you may have been able to demonstrate to the IRS that you qualify for the insolvency exclusion. You’ll find the worksheet for that calculation in IRS publication 4681. You may still be able to use that worksheet to show you qualified for an exclusion for the 2010 tax year.

I’d recommend you read my series of articles on 1099-Cs so you are familiar with this issue. Then I’d suggest you try to find a tax professional with 1099-C experience to help you figure out how to address this. I wish I could tell you how to handle it yourself, but there’s no clear process for doing that and I don’t want to see you get stuck with additional interest or penalties.


Back in 2005, I pulled my credit report as a victim of I’d theft. A bank had a trade line listed for under $1,000. I contacted the bank, wrote to and had conversations with the executive office. I received a letter from the bank stating my name, social security number, or address could not be found, they claimed to have no record of the account and put it in writing. They assisted by removing the derogatory trade line. Flash forward 6 years to 2011 where the bank sends the 1099C. I had no idea what is was about, but scanned my hard drive for the alleged account number. The same dollar amount and number came up on the copies of letters and files from the disputed account they said they knew nothing about. I called the bank and no one seemed to have information about the alleged debt, first they claimed it was a paycheck for work I did for them in 2010. I told them I did not work for them. Then the story changed and the 1099C was for the balance on a defaulted car loan. I never had a loan with the bank. Then they changed the story to a payday loan. I contested that, then finally it was some checking account where I allegedly bounced a check. When I told them we needed to investigate and I wanted proof of the debt, they said they did not have to provide it because they were not asking me to pay anything. The person I spoke to was from the executive office I dealt with in 2005 and they buy claims he had records of the account when the woman who handles the case in 2005, who sits next to him. They refused to correct their records. They refused to investigate. The IRS would not help intervene. The IRS to,d me to leave it off my tax return as earned income and wait until I get audited, then file my appeal. Surely there is a better way,

Jen – I agree with you 100%. There has got to be a better procedure for disputing inaccurate 1099-C forms. (And if the bank really thought there was a cancelled debt, they should have sent the form within three years after no substantial collection activity – not 7! )

You may want to consider filing a complaint against the bank with their regulator. And send a copy to your elected officials in DC. The IRS is a federal agency and they need to hear what their constituents are dealing with.

Mr. D

What you have said Jen is what I was actually looking for, a way to dispute the form itself.

I was 17 and took a loan from my boss where I was working at the time to get a working vehicle. Later, I was fired from the boss who then told me to go get another loan as they would no longer accept my payments (I had a friend who was going to try to help). 17, no job, and going to high school still – no way to get a loan and finally they came and took the vehicle back. I probably owed around 2400 on the vehicle, they sold it for 5500 (I actually knew the guy who bought it).

So yes, I think I will probably leave it off and wait for an audit to dispute/file a appeal. I was hoping for a better way though. I am just stunned that the government would allow creditors/big business to just really throw it on a person years down the road when all the true evidence is long gone. Gerri

Oh, the 2012 1099-c I received from Chase for the SAME ACCT said it was settled Jan 10, 2012…. Incorrect!

Rebecca – Clearly their records aren’t correct. First, contact Chase and insist they send you a corrected 1099-C. Keep good notes/records of your conversations with them in case they fail to do anything.

Then contact your CPA for advice on how to file an explanation. I’d also encourage you to take the same advice I gave to Mr. D above and file complaints.

So I have 2 1099-c’s for the Same account with Chase, different settlement dates ( one 2011 and 1 2012). It was cx’d in 2011. For diff amounts ( 20k and 22k). Please Help.

Did you settle it in 2012? It doesn’t matter how much they paid for the debt – what matters is how much they forgave in the settlements. At least that’s how the IRS looks at it according to my research. Do you have that information in any kind of written format? A settlement letter perhaps?

Doug, I am in the same boat as you, with the same issue from Asset Acceptance. I just filed, before I got the papers. They have me on the hook for $5k.

I am curious what responses you get. I paid them a good sum from the debt, and basically they’re saying that it was all interest, since $0 appears in box 3

I settled with a Credit Card (Chase) in 2011 by paying half and have the letter on file of their agreement with settlement in full. I know received a 1099C dated 2012. How can they issued a 1099C for a past year settlement?

I received a 1099-C form from Bank of America saying the credit card debt was “discharged”. I paid the full balance immediately after my husband died. I contacted the estate department of Bank America who acknowledge I did pay the full balance and this was submitted in error. I had already paid my taxes not claiming income on the 1099-C because I was told two weeks prior that a corrected form would be sent. I contacted them again 12days later when a corrected form was not received and was told I needed to refile my taxes and they would not be sending a corrected form. I don’t understand as this is clearly their mistake and could cause me a great deal of problems with the IRS. I thought they were required to send a corrected form. What do I do now?.

Category: Bank

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