IRS Statutory Notification Letter - Publication 908

[David A. Szwak]

I received a collection letter with the heading "IRS Statutory Notification Letter - Publication 908." and it referenced IRS Form 1099 - is this legal?

According to the FTC's interpretation, this clearly violates section 807(5) False threats of legal action

A typical scenario: You receive an official looking letter that reminds you of a debt you have not paid. It then refers to the creditor's "right to forgive this debt and submit a Form 1099 to the Internal Revenue Service on all bad debt accounts." The last sentence usually reassures you that the creditor does not intend to take such an action at this time, and then urges you to remit payment to "avoid any additional collection activity."

In general, Form 1099 is used to report additional income. Let's say you owe a creditor $10,000 and the creditor files a Form 1099. This would mean that you, in theory, must report the $10,000 as income on your federal tax return.

The IRS does not require creditors who discharge debts to file a Form 1099, no matter how much the debt is worth. Second, although implied, creditor rarely file Form 1099 even when the debt remains unpaid.

Thus, the official looking letter you receive creates the distinct but false impression that the collection agency is required by the IRS or by a statute administered by the IRS to send that dunning letter to you. Since this is not true, the representation violates Section 807(10). This, in turn, may create the additional false impression that the IRS has been informed about the debt at issue, also in violation of Section 807(10).

The whole intent behind the letter is to scare you into paying the debt but since the filing of such a form is never the result of a failure to pay and since the creditor does not ever intend to file such a form, a representation to the contrary, such as in the letter you receive, violates section 807(5).

Additionally, section 807(9) prohibits documents that fraudulently appear to be officially authorized by the government or otherwise mislead the recipient as to their authorship. The purpose of this section is to discourage debt collectors from attempting to use the authority of the government deceptively to scare consumers into paying the debt at issue. Thus, dunning consumers with letters that look like government documents violates both the letter and the spirit of this provision.