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  1. #1
    Join Date
    Sep 2016
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    Default Can a Creditor Issue a 1099-C for a Disputed Debt

    A customer returned a leased car. The lessor claimed that minor scratches justified a significant repair bill, close to $1,000. The lessee argued that the scratches were so minor that they weren't damage under the contract. The lessor tried to collect the bill for about a year, then issued a 1099-C to the lessee. Does the lessee have to pay taxes on the 1099-C?

  2. #2
    Join Date
    Sep 2005
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    Default Re: Can a Creditor Issue a 1099-C for a Disputed Debt

    The lessee may dispute the 1099-C with the IRS. If the lessee does not do so, the IRS will expect to be paid taxes on the amount stated on the 1099-C, although that would still be a lot less than the face value of the debt.

    If the IRS overrules your initial objection and issues a notice of proposed assessment, the subsequent process can get pretty tricky.

    The lessee can consider legal action against the lessor, but I would expect that the lessee would need a lawyer's assistance and that it would not be cost-effective.

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