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tax question

Can the government do this? We had a car repo'ed many years back. We never saw it after that. we then get a letter in the mail from the finance company we had the car from that there was a charge off. We thought it was great but then we got another letter in the mail a couple years ago from the irs saying we owed money to the irs because they count the "charge off" as income. We never saw any of that money so how can this be? Thanks in advance for any help yall can give me...

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mommyoftwins213

Asked by mommyoftwins213 at 1:19 PM on Jan. 27, 2011 in Money & Work

Level 5 (75 Credits)
Answers (10)
  • http://www.bankrate.com/brm/itax/tax_adviser/20070802_debt_charge_off_a1.asp

    This article might help you, its not the exact scenario, but it's close and explains why.
    gumby11883

    Answer by gumby11883 at 1:24 PM on Jan. 27, 2011

  • IF you are suppose to pay a property tax on your stuff and the car was charged off then they can go after you for not paying the tax or reporting that you no longer had it. .
    Anonymous

    Answer by Anonymous at 1:27 PM on Jan. 27, 2011

  • Yep, that's how it works.
    When a company will charge something off for you, whether it be a credit card or a financing company of other sorts, you owe the taxes on that amount.
    Candi1024

    Answer by Candi1024 at 1:30 PM on Jan. 27, 2011

  • You didn't actually see the money, because it went directly to the charge off, but technically you recieved the benifit of it, thus the tax.
    Candi1024

    Answer by Candi1024 at 1:31 PM on Jan. 27, 2011

  • Was it a forgiven debt or canceled debt? If it was for any reason then it is considered income. Go to page 85 in the 2010 Publication 17 ...you can look it up on the irs.gov website.
    Anonymous

    Answer by Anonymous at 1:34 PM on Jan. 27, 2011

  • I don't have an answer, but I do have another question, in case someone knows, or you come across it in your reasearch: In this situation, is the institution issuing the charge-off responsible for supplying any forms (like a 1099) for tax purposes? Obviously it was reported to the IRS somehow, so it seems like they should have sent you something saying that it had been reported as income.
    DragonRiderMD

    Answer by DragonRiderMD at 1:38 PM on Jan. 27, 2011

  • They do that on houses too. Many people are very surprised when they owe taxes on the amount that was "forgiven" in a short sale.
    LoveMyDog

    Answer by LoveMyDog at 2:09 PM on Jan. 27, 2011

  • The write-off amount is considered taxable income. This is also done on credit card debt that is written off, and on some (not all) mortgages that have defaulted.
    Scuba

    Answer by Scuba at 2:38 PM on Jan. 27, 2011

  • Call the IRS 1-800-829-1040 - Hours of Operation: Monday – Friday, 7:00 a.m. – 10:00 p.m. your local time (Alaska & Hawaii follow Pacific Time).
    rkoloms

    Answer by rkoloms at 3:49 PM on Jan. 27, 2011

  • Yep that's accurate. Unless it's a write off on your personal home, it counts as income. But it's not like you have to pay it all back. Say you're in the 25th percentile and they wrote off $5000. You'll have to pay about $1250 in taxes. Which sounds like a lot, and it kinda is a lot. But it's a whole lot better than paying $5000. KWIM?
    Erica_Smerica

    Answer by Erica_Smerica at 4:36 PM on Jan. 27, 2011

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