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 NO!

It is inequitable to require a debtor to claim cancellation of debt income as a component of his or her gross income and subsequently pay taxes on it while still allowing the creditor, who has reported to the Internal Revenue Service and the debtor that the indebtedness was cancelled or discharged, to then collect it from the debtor.  …… The court does not agree with the argument that because a Form 1099-C can be corrected or amended, it cannot constitute an admission by a creditor that a debt has, in fact, been discharged or cancelled and that the debtor is no longer indebted thereon.

Because it is not reasonable in light of its conflict with sections of the United States Code, the court does not agree that the Internal Revenue Service’s interpretation that the filing of a Form 1099-C does not prohibit further collection of an indebtedness against a debtor is entitled to deference when a debtor has, as required by the Internal Revenue Code, relied upon the Form 1099-C and included the discharged or cancelled debt in gross income for the purpose of determining the debtor’s taxable income. It is inequitable to require a debtor to claim cancellation of debt income as a component of his or her gross income and subsequently pay taxes on it while still allowing the creditor, who has reported to the Internal Revenue Service and the debtor that the indebtedness was cancelled or discharged, to then collect it from the debtor.2 Cancellation of debt income is not required to be reported to the Internal Revenue Service unless one of the express “identifiable events” occurs, so it seems to follow that if a financial institution has filed a Form 1099-C with the Internal Revenue Service, cancellation or discharge of a debt has, in fact, occurred. The court does not agree with the argument that because a Form 1099-C can be corrected or amended, it cannot constitute an admission by a creditor that a debt has, in fact, been discharged or cancelled and that the debtor is no longer indebted thereon. See Zilka, 407 B.R. at 689.

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