What would you do?

[helpmeout]

All true. No quibble that the debtor is liable (usually) for the original debt. But that is not the issue in controversy. What we are having the hassle about is the feature of the amount of a 1099, assuming one is issued. the position taken by some is that the last creditor in the chain could issue a 1099 for the difference between the original debt and the recovered amount.

The only one with the hassle about what a 1099 is and the amount put on it when debt is forgiven is you.

The position taken by me is also one taken by the IRS. And they are the ones with the final say, in abscence of a bankruptcy filing, that is.

[JustFileSuit]

quotes from HHM;363496

Also, you seem to be overlooking the issue of "basis". When you purchase any investment asset, the purchase price becomes your tax basis.

Not always - there are always exceptions. Example: your father purchases an asset, say real estate, for 100K. It is now worth 500K. He dies. You get the property in his will. Yet there is no tax to you: notwithstanding the basis price for the purchase, there is now effectively a "new" phantom basis price which is the value at your father's death. What happened to the accrued capital gain? Vanished into the dark hole of the tax ether.

So, if a JDB buys a $25,000 A/R for $2,500, its tax basis is $2,500. If it settles the debt for $6,000, then the JDB has a taxable event on that profit ($3,500).

All true. And the JDB places that gain against his operating costs (and other losses) and ultimately ends up with his tax bill.

But it DOES NOT get to assume the loss of the entire receivable (or $19,000),

Not only that, the JDB doesn't get to assume one penny of the phantom losses.

but the JDB is STILL OBLIGATED to issue a 1099 to the debtor under IRS regulations.

Nope. He is not the party that could be considered to be the entity incurring a loss. If anybody has the Standing to issue anything, it would be the original credit issuer. But he does not, as the issuance of the 1099 by him (for the difference) would vacate any ability of the new Holder to collect that difference.

The issuance of a 1099 DOES NOT create a correlative taxable event for the issuer.

Sure it does. The 1099 "information document" in this case is intended to record a net benefit, here imputed income to be treated by the IRS as actual ordinary income, to the debtor. The net benefit to the debtor is the net loss to someone else. Except that it isn't to the new Holder, as that Holder did not pay for the debt at full value. The offset would be to the original creditor. And we have seen that he does not issue one, due to the salability issue. So there you go.

[HHM]

quotes from HHM;363496

Not always - there are always exceptions. Example: your father purchases an asset, say real estate, for 100K. It is now worth 500K. He dies. You get the property in his will. Yet there is no tax to you: notwithstanding the basis price for the purchase, there is now effectively a "new" phantom basis price which is the value at your father's death. What happened to the accrued capital gain? Vanished into the dark hole of the tax ether.

All true. And the JDB places that gain against his operating costs (and other losses) and ultimately ends up with his tax bill.

Not only that, the JDB doesn't get to assume one penny of the phantom losses.

Nope. He is not the party that could be considered to be the entity incurring a loss. If anybody has the Standing to issue anything, it would be the original credit issuer. But he does not, as the issuance of the 1099 by him (for the difference) would vacate any ability of the new Holder to collect that difference.
Sure it does. The 1099 "information document" in this case is intended to record a net benefit, here imputed income to be treated by the IRS as actual ordinary income, to the debtor. The net benefit to the debtor is the net loss to someone else. Except that it isn't to the new Holder, as that Holder did not pay for the debt at full value. The offset would be to the original creditor. And we have seen that he does not issue one, due to the salability issue. So there you go.

Cite your source?

[justbroke]

If anybody has the Standing to issue anything, it would be the original credit issuer.

This is the first time I ever read someone post about "standing" concerning issuing an IRS income form. My company uses ADP for payroll and ADP issues my W-2. I guess the "contract" between my company and ADP gives them standing. I guess the contract between the JDB and the original creditor (or creditor from whom they purchased the debt)... gives them standing. I still don't like that word though.

You may want to go talk to the IRS about this whole notion of the "JDB doesn't have standing". The IRS doesn't feel that way at all. Remember, the IRS is using this as a revenue collection means. You will be fighting with the IRS on this, and they will simply just ignore you. If you want to fight the IRS, you need two things. Patience and money. You need patience as your case drags out (for months and maybe years). You need money, because if your case goes sideways, now your stuck with the 50% penalty and then compounded interest over the period you were fighting this. I will concede that fighting with the United States is a pain because of the costs, but still... you're challenging an IRS regulation that is already in place.

As HHM posted, please show us in the IRS regulations where a JDB does not have to issue a 1099-C for the full amount. Please tell us (at least HHM and I) how this theory of yours works given the decision in Debt Buyer's Association vs. John Snow, as United States Secretary of Treasury, 06–101 (CKK) (United States District Court for the District of Columbia, 2006) and how the Treasury's revised 2008 rules come into play here? A case or two may be good to counter the Snow, Id., decision.

(I would think the DBA (Debt Buyer's Association) had a lot of money to fight the Treasury as well as pretty talented lawyers... and they lost.)