I have reached a tentative settlement on behalf of a client with counsel to Discover. I do not want the “forgiven” portion of the debt to result in a 1099-C as taxable income. His response was that Discover has taken the position that the 1099-C is required by the IRS when debt is forgiven, but that if I can show authority to the contrary, he’ll present it to make the case. was this a settlement of a disputed debt? If the latter, no 1099 is required. If the former, a 1099 is required, AND even if they don’t issue one, the COI income is taxable. An agreement not to issue a 1099 when one is required is basically a conspiracy to commit tax fraud/evasion. I suppose everyone has seen this article from the NYT, but I’m amazed how textbook it is. I’ve seen this repeated over-and-over-and-over with my clients. Divorce, kids, and too much house, how often have we seen that? He does exactly what everyone else does, first starts trading among the cards, then looks for a second, then tries to withdraw from his retirement. Then finally, his wife gets a better job,–and it’s too little too late. And of course, the spouses fighting about money. And you could say correctly that the guy is an idiot and should have known better. But look what the credit card companies did,–any sober person could see he was headed for disaster,–so what did they do? Like drug-dealers, they targeted him for more and greater debt.
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