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Can a lender collect on a debt after issuing Form 1099-C to the defaulter? and More…

Bankruptcy

Can a lender collect on a debt after issuing Form 1099-C to the defaulter?

A bankruptcy court says no. A couple failed to pay their home mortgage, and the bank foreclosed, issuing them a 1099-C showing debt discharge income of $5,000, the excess of the mortgage balance over what the house was sold for. The couple reported the $5,000 as income. The bank sued them for the shortfall, and they later filed for bankruptcy. The bankruptcy court ruled that the issuance of the 1099-C by the bank barred any later collection efforts (Reed, D.C., Tenn.).

But other courts have disagreed, pointing out statements in IRS rulings that agency regulations do not prohibit subsequent collection activities by lenders.

Eventually, a higher Court will have to step in and settle the dispute.

Payroll Taxes

The Social Security wage base is expected to be $115,500 for 2014, up $1,800 from this year’s ceiling, according to Social Security Admin. trustees. That’s down $300 from President Obama’s budget forecast that came out in April.

Back Taxes

A three-decade-old employment tax debt can still come back to haunt you. A man who was an officer of a company that didn’t pay payroll taxes in 1982 was found jointly liable with two other corporate executives for the overdue taxes many years later. When the Service finally attempted to collect the debt from him, he claimed that it had been fully satisfied by one of the other responsible persons. But the Tax Court found that only part of the money had been repaid, and it said IRS could go after him for the balance, despite the debt’s age (Beeler, TC Memo. 2013-130).

IRS has an uphill battle if the statute of limitations has run out on a tax year.

It has to prove fraud to collect back taxes, as this case shows. A couple were audited by the Service, which found evidence of some unreported income and personal expenses being claimed as business expenses. Unfortunately for IRS, its examiners let the statute of limitations lapse, so it alleged fraud. The Tax Court said that the couple’s actions were negligent and didn’t amount to fraud. Their books were detailed, and they cooperated with IRS agents (Bohannon, TC Memo. 2013-122).

Benefit Plans

Want to know whether or not a fringe benefit is taxable income?

The Revenue Service has a helpful guide to fringes, a training manual for government entities that has been updated for 2013 to reflect IRS’ current views. It covers the gamut of perks … cars, dependent care assistance, mass transit passes, meals and lodging, etc., as well as whether payroll taxes are due and reporting of taxable fringes. Click here to see the handbook.

The Labor Dept. is continuing its push for annuities in retirement plans. It now proposes to have 401(k) plans, 403(b)s and others show annuity illustrations in benefit statements. Participants would see not only their current account balance, but also a projected retirement balance. Both would be reported as a lifetime stream of monthly payments, based on expected-mortality tables. The Labor Dept. believes that individuals will be better able to understand their finances and might save more for retirement if they see account balances expressed as lifetime monthly income.

Enforcement

An important filing deadline is nearing for owners of foreign accounts: U.S. citizens with foreign accounts whose total value exceeded $10,000 at any time in 2012 have to file TD Form 90-22.1 with the Treasury Dept. no later than June 30. This filing rule is in addition to the requirement that those with lots of assets abroad attach IRS Form 8938 to their timely filed tax returns, so one or both of the forms may have to be filed by a taxpayer, depending on his or her particular circumstances.

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