Dear Senator Hagan,
I am writing about Taxation and Economic Integrity. Taxation is probably the most unfavorable part of citizenry, but I do understand that everyone must pay their fair share if they want government to provide services. What I do not agree with is the “Cancellation of Debt” as income tax. I have been dealing with the IRS for two letters now about a company that has filed a 1099-C form that has been applied to my IRS account. I have no knowledge of this company or the debt, in which I am handling this with the IRS. The point that this brings up is the fact that this is even an available option for the IRS to make a claim on a person’s income because of a cancellation of debt. Debt is the Antithesis of Income. The income from a debt transaction is the interest and fees made off the principal of the loan or granted credit for the creditor. There is no “income” for the recipient of the loan or granted credit, because they have to pay it all back plus interest and fees. Even if we were trying to drill down to the root of the issue, the receipt gains money only of the amount that would be the principal if the loan or credit was never repaid. For example a $500 limit credit card a person ran up to the limit only gave the person $500. But, the creditor’s interest and fees can balloon this $500 amount quickly and easily as to generate income for itself. Compound the interest and fees with the selling of debt through multiple collection agencies and that $500 is now easily $2000. The final company files losses on their tax report as well as submit this $2000 as a “Cancellation of Debt” to the IRS. How is this final amount a representation of income when it does not reflect real money gained or earned? This money was not earned, it was forgiven and the debt was cancelled. Only on the IRS Publication 4681, is there any correlation to Debt being income. How can this simple inference that John cancelled $600 of debt for Mary’s $1000, that Mary suddenly had $600 as income? This is a poor observation and a misleading diagnosis. It is a false statement that is solely made true only because it appears as letters and words on a Federal Document. A cancellation of debt is not income. This is just another demonstration of the mockery that presents itself as the IRS. Rules and regulations such as this continue to reflect poorly on the Congress who are either unwilling or too inept to correct such erroneous rules and regulations that reside within the Tax Code. Most of the reason that we are in such trying economic times is because of the lack of fortitude in Congress as well as negligent laws including the allowing of the sale of debt from company to company until one company files bankruptcy or gets bailed out by the government, ie: AIG. Writing legislation is not hard; getting legislation passed is the complicated part. We should at least see attempts from our representatives making an effort to correct erroneous rules and regulations that have been molded in favor for financial entities. Financial entities have caused enough economic challenges for America at large and need to be reigned in. This will take leadership and fortitude to take on the financial sector in which most Congressional representatives cannot demonstrate. Good Luck in your future endeavors and I hope to see positive legislation coming from your office.
Kind Regards,
Paul Michael Owens
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