FORGIVENESS OF CREDIT CARD DEBT IS USUALLY TAXABLE, BUT NOT IN THIS CASE

A man who owed on his credit cards failed to pay up, and the credit card company eventually wrote off his debt. More than 10 years later, a firm that acquired the debt from the credit card company contacted him to collect, but he did not owe the debt because of the states statute of limitation had run out.

He protested and the firm ceased its collection efforts. But, the new collection company issued him a Form 1099-C reporting debt cancellation income for that year. The IRS said that meant he owed tax on the amount listed on the form.The taxpayer won but had to go all the way to the Tax Court. In its view, the debt was discharged years ago, which is when the 1099-C should have been issued.(Stewart, TC Summ. Op. 2012-46).