If debt is negotiated through a settlement or something like that, whereby I can pay less, who reports it to the IRS as income? Can that be avoided?
One thing I would like to add is that if the settlement is done after a lawsuit has been filed and you have defended yourself, 1099 might not be issued.
Well, the forgiven amount is considered as income and that's why you have to pay taxes for it. And it's the lender's responsibility to report the reduction to the IRS with a 1099-c form. A fine of $50 is imposed if he fails to report.
What you can do is, if you want to dodge the taxes.. ask your lender not to report with 1099-c and pay him $50 in excess to the settled amount. Further complications or inquiries can be avoided if the settlement agreement mentions the debt to be a disputed one.
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Last Updated on: Fri, 8 Jun 2018