After some legal action, a large home building supplier dropped their claim that I had not appropriately cancelled a roofing contract and thus owed a 25% restocking fee - $3352. This was several years ago and credit scores were returned to normal levels and this did not show up on any credit searches w hile buying a new home.

Today, I received a 1099-C, Cancellation of Debt for the amount above. My attorney is telling me that since the debt never incurred, this was sent in error. Since the larger supplier is not willing to discuss further, how do I deal with the 1099? I feel I should not have to claim this as income.

Please advise, Thank you.

I think the fact that you received this cancellation of debt 1099-C means that you have to report this amount on your tax return, unless the large builder is going to amend the 1099-Misc. I agree with you that this perhaps does not make any sense and that you should attempt to dispute it.

I would first have your attorney demand that this 1099-Misc be corrected immediately or else your are going to take some action. But, remember if the Attorney charges you $350 per hour, it does not make much sense to fight this.

Perhaps, it might be the case where if your effective tax rate is below 20%, in which case the net tax liability might be only $660.00. Does it make sense to incurr $1,000 in attorney's fees to for something that my cost only $660.00? Maybe not, I think!

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