by Barbara Delinsky
According to the latest reports by the IRS, the biggest tax debt mess is about to happen in 2012 as an approximate number of 6.5 million 1099-C forms that reported cancellation of debt income has been given out to the taxpayers. The most surprising fact is that the 1099-C forms have been sent to the consumers for too old debts that they must have forgotten about. To make matters worse, the IRS is providing insufficient advice to the taxpayers about the payment of taxes and the tax professionals have varied views about the ways in which they can deal with such a situation. Though there are various tax debt help options that you can take resort to in order to wipe off your tax woes, yet the biggest question is why are the creditors now sending out forms for the old debts?
Since there will be a pack of new requirements for 1099 reporting that will be introduced in 2012, the IRS wants to collect debt from the people irrespective of their present monthly income. The present phenomenon that is taking place within the US tax industry is mostly like the blast from the past where most tax payers are receiving nasty surprises from the tax lawyers about something that is fated back a couple of years ago. As per the National Taxpayer Advocate, the 1099-Cs for the Cancellation of Debt Income or the CODI can easily be a burden to most taxpayers as they’re being forced to repay regardless of their monthly wages.
The new instructions in the 1099-C form – What guidance does the IRS provide?
Reports suggest that there will be certain instructions for the 1099-C form and the IRS has provided some new guidance to the creditors. Check them out.
A debt is considered to be cancelled on the day on which a particular event occurs or the date on which the actual discharge when you opt to file Form 1099-C for the cancellation year. One of the identifiable events includes cancellation when the SOL for the debt collection expires or when the constitutional period for starting off with a deficiency judgment ends. Therefore it appears that the SOL only comes into action when the debtor has been sued for the debt account as a guard against the debt collection efforts of the creditors.
There is another event that can be termed as identifiable event, a release of indebtedness due to a policy of the agents to stop all collection activities and cancel debt. A creditor’s practice to put an end to all the debt collection activities and discard a debt when a non-repayment period ends is a defined policy. The statute of limitations for the IRS to assess the tax debt generally expires within 3 years since you’ve filed a return. However, there is no particular SOL for assessing and collecting the taxes if no tax return has been filed.
Though the taxpayers who have been struggling with paying off their debts argue with the IRS is something that is to be seen. No one actually knows whether the IRS will become aggressive in order to recuperate the debt amount. Get good financial advice and follow the rules so that you don’t end up getting caught by the IRS.
Author Bio- This article is contributed by Barbara Delinsky who is a financial coach of Oak View Law Group. She is also a guest columnist. Barbara has been writing more than 5 years and helping people to get out of their debt and filing taxes. She also helps them to get answer of their questions regarding their personal finances.