Collection of Debt

Discussion in 'General Discussion' started by tarkusdt, Mar 24, 2013.

  1. tarkusdt

    tarkusdt Newbie

    My father payed off a credit card debt in March of 2012. He had no idea this was considered taxable income. He just received the w2 form the other day. He had no taxable income so he is receiving the max benefit. What are the consequences of this. How will this effect his benefits going forward, and will the VA try to recoup some of the money and how will it work? They are barely scraping by as is is now.

    Any help would be appreciated
    David
     
  2. vetadmin

    vetadmin Administrator Staff Member

    Who did he get the W2 from? This pension is tax-free.
     
  3. tarkusdt

    tarkusdt Newbie

    He got the W2 from Citibank.
     
  4. newpenny

    newpenny Jr. Member

    i think you mean citibank send a W2 cancellation of debt. meaning the debt was not paid. Is this waht you Mean?
     
  5. newpenny

    newpenny Jr. Member

    I meant to say a form 1099-C. A cancellation of debt. Is this what you mean?
     
  6. newpenny

    newpenny Jr. Member

    The person I am taking care of has no taxable income so he is receiving the max also.
    He had a credit card, issued before A&A, but because he had no money he could not pay it, and Bank of America, knew he had no money to pay, so they cancelled the debt. They are required by law to send a from 1099-C, cancellation of debt to you and the IRS. They issued him one dated 12/31/12.
    What I did was fill out a form 982 and attached it to the 1040, I send in to the IRS for the 2012 tax return. The 982 is used to show a person was insolvent at the time the debt was cancelled. I enclosed the worksheet also to show what I did. When you do this it shows insolvency. This cancels out the 1099-C, and it is no longer considered reportable income on your income tax.
    I found out how to do this on the internet, by someone who had to do this for his mom who was in the same situation.
    The IRS.gov web site also tells you how to do this.
    Has anyone else had to do this?
    Should I explain this to the VA or will the tax return from the IRS be enough?
     
  7. vetadmin

    vetadmin Administrator Staff Member

    The return to the IRS should be sufficent.
     
  8. tarkusdt

    tarkusdt Newbie

    He settled the debt and received a W2 with the taxable income listed on it.
     
  9. newpenny

    newpenny Jr. Member

    by settling the debt, you must mean he paid part of it off but not all of it and the taxable income is the part he did not pay off. If he was insolvent at the time he should not have to pay tax on it. If your father has no taxable income, he did not need to pay this because they cannot go after his VA money. If he went to Legal Services for the Elderly, they would have notified citibank about this, free of charge to your farther. I am pretty sure this can be fixed, it sounds alot like the 1099-C, cancellation of debt.Part of the debt was cancelled.
    What you need to do now is find tax help for the elderly in your area and they should help your father fix this on his income tax. There are free clinics in most areas, usually held by AARP up until April 15.
    In many areas they are held in the Public Libraries. I would do this now
     
  10. newpenny

    newpenny Jr. Member

    If your father settled with Citibank, they should have issued him a 1099-C on the unpaid debt. This is what was is confusing to me. Every place I have checked on the web says this.
    The tax people should be able to fix this.
     
  11. tarkusdt

    tarkusdt Newbie

    It says W2 on the document he received. He is getting advice from a lawyer. They aren't going after his VA money, he does not want to lose any of the benefits because of the taxable income.

    Edit:

    I'm sorry, the document is a 1099-C. I don't know where I got the W2 from.
     
  12. newpenny

    newpenny Jr. Member

    Now that makes sense. Then you can do what I did , I did it myself or get help from the volunteers that help elderly do income tax. You will need form 982 to attach to income return and it also has instructions that you should read to understand what you have to do. You can go to IRS.gov and download forms.
    You really should mail this in and attach work sheet that you use for form 982, so that the IRS will understand what you did and they will not have to ask for more info. But you need to do it now.
    let me know if you need help.
     
  13. tarkusdt

    tarkusdt Newbie

    Thanks for the info, newpenny.
     

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