can the government add a repo to you income credit?

Question

3 years ago I paid off a repo for a lesser amount and yesterday recieved a letter stating my 2005 income tax was wrong because i didn't account for a canceled debt of $4,000 from Wells Fargo. I'm pretty sure this is not a scam letter.

Answer 1

Canceled debt is reported on a 1099 C. The problem seems to be that the lenders seem to send these out well after the tax season for the year in which they apply. I would guess they are not identified until their accountants do the tax return for the lender. In any case you owe tax on that amount as if it were ordinary income. There are some exceptions but for the most part you just pay.

Answer 2

If debt is forgiven, the amount forgiven is generally taxable income. You should have gotten a 1099-C for the amount. It's not a scam - it's the law, and you owe taxes on the amount unless you can prove you were insolvent at the time.

Answer 3

Cancellation of debt should be included on your income tax return. It goes on line 21, Miscellaneous Income.

You should have received a 1099C form from the company that canceled the debt.

This is a way to not have to include that income. If you were insolvent (your liabilities exceed your assets.)
This is a link to the bankruptcy tax guide. It will help you.

http://www.irs.gov/pub/irs-pdf/p908.pdf

You should find a competent tax professional to help you.

Answer 4

Call the irs.