Debt resolution company
Settled credit cards and a surprise IRS notice
Illustrative example. Not an actual client.
The facts
A debt settlement program on about $60,000 of credit card balances.
Tax help. The program was nearly finished, but three Forms 1099-C had arrived, the return was filed without them, and an IRS notice proposed tax on the forgiven debt.
- When the debt was forgiven, she owed more than everything she owned was worth
- An older tax balance that was never set up on a plan
- Withholding too low to cover her current tax
- Program records that showed every balance, settlement date and amount
- Income Mismatch Response (CP2000)
- Tax Relief on Settled Debt
- Monthly Payment Plan with the IRS
The IRS notice answered by its deadline with insolvency documented. The older balance put on a payment plan.
Withholding corrected, so she doesn’t end up with a new tax balance, and the settlement program completed.
The client finished the program, and the company had a qualified tax team to refer to without adding tax staff.
The story
She did everything the program asked. She stopped using the cards, made the monthly deposits, and watched the balances settle one by one.
Then the 1099-Cs came. She didn’t know what they were and filed her return without them. A few months later the IRS said she owed tax on the debt that had been forgiven.
Two years of work, and she was about to trade a credit card problem for an IRS problem.