Dick Adams wrote:

- quote -

I don't believe that this is the proper treatment of what
has happened. Since child support is not recognized under
the tax code (not a deduction to the payor nor income to the
recipient), its return does not generate income - per IRC
111. Therefore, the forgiveness of the debt, which would be
income per IRC 108, is excluded from income under IRC 111.
The 1099-C would be issued in error [to the extent that it
reports any amount being refunded.]

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wrote:

- quote -

But _if_ in the divorce proceedings, his ex-wife swore that
he was the father, then her perjury damaged him and he might
be able to collect for that.

Another rude tactic would be to sue for _custody_ on the
grounds that the mother is unfit. If he's the _legal_
father, well, they can't have it both ways.

Seth

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Gil Faver <Rowdy'sboss[at]ND.com> wrote:

- quote -

I think that would depend on why. If it's repayment of
money he paid, and he didn't get a deduction for paying it,
then getting it back shouldn't be income.

- quote -

I don't expect writing it off to provide a tax writeoff.

Seth

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"rick++" <rick303[at]hotmail.com> wrote:

- quote -

do a web search on "paternity fraud" and you will see this
is an up and coming area of the law. Several states are
dealing with this issue. And, I still think a duped dad has
a reasonable chance against the deceitful mom under existing
tort and fraud laws.

One more reason to be single.

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Seth Breidbart wrote:

- quote -

Correct, that's what I'm suggesting.

MTW

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Once one becomes a "legal" parent, it makes little
difference in the courts whether one was a biological
parent or not. Your client has no chance in court.

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MTW <mtwingcpa[at]yahoo.com> wrote:
- quote -

Doesn't cancellation of debt provide taxable income whether
or not the debt arose in the course of somebody else's trade
or business?

Or are you just suggesting that he tell the IRS about the
debt cancellation without issuing a 1099? (Telling the
right office might get him a cut of the extra taxes they
collect, too, if the scheme works the way he hopes.)

Seth

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"Dick Adams" <rdadams[at]smart.net> wrote:

- quote -

`IANAL but in some states he may be the legal father regardless
of absolute proof that he is not the biological father. The idea is
not what is fair to the husband but what is best the child.

Ivan

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- quote -

it sounds like he needs first to get a settlement agreement
where the defrauders agree to owe him $80k. THEN he can
forgive the debt.

question: if the defrauders owe him money, is that not
income to him? (I don't know). If so, then writing off the
bad debt would be a wash to him.

If not, then he could claim a bad debt loss. But he would
have to show he diligently tried to collect it. It sounds
like he cannot show that.

In any event, I have no sympathy for the defrauders. They
belong in jail.

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Dick Adams <rdadams[at]smart.net> wrote:

- quote -

For what? He paid according to a Court Order, right? So
what would charges be based on?

- quote -

For him or them?

Seth

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Dick Adams <rdadams[at]smart.net> wrote:

- quote -

The 1099-C is for financial intitutions and only financial
intitutions. In theory, he could be hit with a frivilous
filing penalty.

The uncollected support funds and not associated with his
trade or business. No writeoff.

And if he is not on the accrual method of accounting, so the
uncollectibles have been accounted for in income past, and
now have to be written off, he could really have some
explaining to do.

The 1099-C is not a toy, and he is not the first person in
the world to come up with that idea. And his fingers could
be burnt.

Or not. It's supposed to be the forgiving time of the year?

__
Art Kamlet ArtKamlet [at] AOL.com Columbus OH K2PZH

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Dick Adams wrote:

- quote -

If he can establish fraud, I suppose he might be entitled to
a casualty deduction for any open years (and/or perhaps the
ENTIRE amount would be deductible in the year that the fraud
was discovered). He could also "inform" the IRS of the
situation. But, I wouldn't issue a 1099. Note that this
situation did NOT arise in the course of his trade or
business.

MTW

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Dick Adams wrote:

- quote -

I'll limit my comments regarding that to "Man, do I feel
sorry for the kid."

- quote -

Does he actually have a legally enforceable debt? If he has
a claim that hasn't been reduced to an enforceable debt,
this sounds like a settlement to me. And settling for less
than you might have gotten in a lawsuit doesn't create COD
income for the person who now pays you less.

- quote -

Y'know, I was just at CPE where a speaker advised tax
preparers to issue 1099-Cs to deadbeat clients. IMHO, you
oughtn't be doing that, since the 1099-C is meant to be used
only by those in the business of lending money. That's
where I stand on this guy, too.

- quote -

As long as he doesn't claim a deduction, I think he won't
even get that. OTOH, I think the ex-wife writing a letter
saying "My ex-husband fraudulently issued this to get even
with me in a paternity dispute" will take care of it on her
end. So all he's going to do is cost her some aggravation.

Phoebe

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Dick Adams <rdadams[at]smart.net> wrote:

- quote -

[and issue a 1099]

Ok, here's what I don't understand. What is this debt and
where did it come from?

And what about his $500 per month obligation?

- quote -

If the $80,000 debt is based on a property settlement
related to the divorce, it may not be a taxable transaction.
So cancellation of the debt may not be a taxable
transaction, either. But it's an unusual issue so to pin
down all the legal points would take some time.

Stu

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"Dick Adams" <rdadams[at]smart.net> wrote:

- quote -

I'm having trouble figuring out how he could have a legal
debt to forgive in order to generate the reported
forgiveness without going to court and trying for a
judgment. I say "trying" because there could well be a
state law presumption that he is the child's father if he's
married to the mother at birth. He would bear the father's
responsibilities at least until it was established that he
wasn't biodad.

--
Phil Marti
Clarksburg, MD

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Couple got married in 1993 and had a child 10 months later.
They divorced in 1995 and he was ordered to pay $500 per
month in child support plus maintain medical and dental
insurance for the child.

By a quirk of circumstances, he learned in March that he is
not the father of the child. Rather his ex-wife's present
husband is the child's father. Needless to say he wanted to
start enough lawsuits to bankrupt all of them. I stopped
talking with him in July because he could not control his
outrage. Fortunately every attorney with whom he has spoken
has told him that as justified as his anger is, he will wind
up with fees in excess of any judgement and a judgement that
will not cover his previous expenditures and will have to be
collected over time.

He called me today and was very calm. His new vengence is
to have his ex-wife acknowledge that she deliberatly
deceived him and perjured herself in the divorce and have
her and her husband both acknowledge that they conspired to
defraud him. In return for which he will not sue either of
them and he will forgive them the debt of 80 some thousand
dollars. He says they have agreed to the idea, but have yet
to sign anything. Unbeknownest to them, he then plans to
issue them a 1099 for the foregiveness of debt and let them
suck on the tax bill.

He wanted my opinion. I said he'd need a written opinion
from a tax attorney so the IRS cannot hit him with civil or
criminal charges. But I'm still laughing about the
maliciousness of his plan.

Does anyone think his idea stands a chance of anything other
than a phone call to come in for an audit?

Dick

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