1099Misc Box 7 instead of 1099C?

Technical topics regarding tax preparation.
#1
Posts:
43
Joined:
11-Feb-2015 2:04pm
Location:
Ohio
A small buy here - pay here type of car lot took back borrower's car.
Loan was much more than car was worth.
First, car lot issued 1099C for difference, but then voided the 1099C and issued a 1099Misc for the same amount.
I have not seen this before.
Has anyone else ran across this and what action did you take?
 

#2
Posts:
85
Joined:
3-Feb-2019 3:12pm
Location:
Chicago
Seems you have two transactions for the price of one:

(1) disposition of taxpayer’s ride, generating a nondeductible capital loss (...unless taxpayer’s “side hustle” was rollin’ in that ride for Uber) and

(2) a potential discharge of debt creating COD income. Perhaps taxpayer can contact lender to find out their intentions. The fact that they voided the 1099-C may be an indication that they don’t intend to discharge the debt. Taxpayers have used the 1099-C to argue the lender is estopped from pursuing them for the balance of the loan because of taxpayer’s detrimental reliance on the form. So if a lender intends to factor the loan receivable to a collection agency, it might fetch more money if the 1099-C doesn’t exist.

Curious what others thinks.

Pub 4681:

Recourse debt. If you owned property that was subject to a recourse debt in excess of the FMV of the property, the lender's foreclosure or repossession of the property is treated as a sale or disposition of the property by you and may result in your realization of gain or loss. The gain or loss on the disposition of the property is measured by the difference between the FMV of the property at the time of the disposition and your adjusted basis (usually your cost) in the property. The character of the gain or loss (such as ordinary or capital) is determined by the character of the property. If the lender forgives all or part of the amount of the debt in excess of the FMV of the property, the cancellation of the excess debt may result in ordinary income. The ordinary income from the cancellation of debt (the excess of the canceled debt over the FMV of the property) must be included in your gross income reported on your tax return unless one of the exceptions or exclusions described later applies.
 


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