In Uncategorized on 09/09/2015 at 22:38

Once again we examine the magic date when a debt is deemed uncollectible, thereby relieving the debtor of the indebtedness and sparking a Form 1099-C. But here is the difference: what effort is appropriate to ascertaining that date?

Nothing particularly new in this T. C. Memo, Patricia D. Clark, 2015 T. C. Memo. 175, filed 9/9/15. The issue is whether an identifiable event occurred manifesting that efforts to collect the debt were abandoned.

There’s more on this subject in my blogpost “Sunk by the Navy?” 9/28/11. Judge Cohen cites the Kleber case in this opinion.

Pat defaulted on her auto loan, the car got sold for less than the outstanding balance plus collection fees, the note was sold, and five (count ‘em, five) different collection agencies tried (or maybe didn’t try too hard) to collect from Pat.

Finally, the note holder unloaded a Form 1099-C on Pat, but it came back “undeliverable.”

IRS unloaded a SNOD on Pat, for $1,472.00. And thereby hangs the tale.

Pat claims the debt became uncollectible years before the creditor unloaded the 1099-C.

“There is a rebuttable presumption that an identifiable event has occurred during a calendar year if a creditor has not received a payment on a debt at any time during a testing period ending at the close of the year. Sec. 1.6050P- 1(b)(2)(iv), Income Tax Regs. The testing period is generally a 36-month period.” 2015 T. C. Memo. 175, at p. 7.

Of course, rebuttable presumptions are made to be rebutted.

IRS claims the engagement of the five (count ‘em, five) collection agencies shows that collection activities kept going on until the year when the 1099-C was unloaded.

But IRS falls short.

Judge Cohen: “ While respondent has established that collection agencies were engaged, the evidence does not demonstrate what, if any, collection activities they undertook. Respondent has therefore failed to provide any evidence of any significant, bona fide activity that would indicate an active creditor and thus has failed to rebut the presumption that an identifiable event discharging petitioner’s debt occurred….” 2015 T. C. Memo. 175, at p. 9.

Which gives rise to the title of this blogpost. How much time and effort would it take to amass evidence of all the collection activities undertaken by these agencies (assuming that they were still in business and had their records available), and provide such evidence in admissible form?

If this problem were posed to a private law firm, they might well ask whether, whatever effort was required, was it worth expending for a $1,472.00 claim?

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