debt settled through a collection agency?
I keep hearing about people settling debts and the comments regarding state if they settle, they will have to claim the difference to the IRS….my account was turned over to a collection agency, I owed a little over 0.00..the collection agency sent me a letter stating they were willing to settle for I think it was somewhere around 0.00, I paid the 0.00 (this happened about 3 years ago)..should I have reported it to the IRS??
is there like a statute of limitations – meaning after X amount of years there is nothing the IRS can do if this error is not caught?
I can’t fix my typo!..if the error is caught in 2010, can the IRS still fine me?
Posted August 3rd, 2010 in Debt Settlement. Tagged: 3 years, debts, irs, statute of limitations, typo.
Technically, the original debtor should have sent you a 1099 for the $450 that was written off and you would have reported that as income when filing your taxes for that year. However, if the original debtor never wrote off the difference, you may have escaped tax free.
August 3rd, 2010 at 9:59 pmThe IRS only requires a 1099 to be generated if the amount is over $600. Since your difference was only about $500 they most likely did not report it.
So while technically you must report all income(earned and unearned) on your taxes, if the company did not report it and you don’t report it there is no way for the IRS to know. If you want to be sure you are clear you can file an amended tax return, paying the tax due as well as any penalties and interest(since you are now technically late). But it may be a case where you can just hope that it doesn’t get caught.
August 3rd, 2010 at 9:59 pmThe statute of limitations for the IRS initiating a claim for taxes and accessing penalties and interest is 3 years from the time you file your return for that year or April 15th which ever is later. If you do not file a tax return, there isn’t any statute of limitations.
August 3rd, 2010 at 9:59 pm