My bank sent me the wrong tax form — and now it’s ignoring me

Question: Last year I settled my mortgage debt with Fifth Third Bank here in Ohio. After a short sale of the house, I had a deficiency balance of more than $50,000, but through a collection agency, I settled for a $10,000 lump sum payment.

Here’s my problem: Because the debt was settled last year, I should have been issued a 1099 for the mortgage debt forgiven in 2011 to file with that year’s taxes. But the bank is telling me that they will issue it to me for 2012, and that I will have to file it with my 2012 taxes.

This is a major concern to me because the Mortgage Forgiveness Debt Relief Act expires at the end of 2011. This act protects me from having to pay taxes on forgiven mortgage debt. But if I file the 1099 next with my 2012 taxes, I may have to pay taxes on this debt.

What should I do? I’ve been speaking with a manager at Fifth Third bank, and she’s been virtually ignoring me. She admits that its a mistake on their part, but that it’s nothing she can do about it. Can you help? — Dante Lee, Columbus, Ohio

Answer: Your bank should have sent you the right forms the first time, and when you pointed out the error, it should have fixed it immediately — not shrugged it off by saying, “There’s nothing we can do about it.”

I mean, seriously. Fifth Third is behaving as if it’s … well, a bank.

Let’s go over a few of your particulars. A short sale of a home is a popular alternative to a foreclosure. In a short sale, your lender — in this case Fifth Third — is accepting less than the total amount due on your mortgage, because of declining real estate prices. The buyer is getting a good price on a home. And both you and the bank get to avoid a painful foreclosure.

There’s one catch, which you mentioned. You could still owe the unpaid difference on your mortgage, plus interest and penalties, to the lender. That’s called a deficiency. Your bank sent a collection agency after you for the remaining $50,000, and you settled with it for $10,000.

Actually, the law you cited, the Mortgage Debt Relief Act of 2007, which allows taxpayers to exclude from their income the amount of debt that is forgiven or canceled by their lenders, doesn’t expire until Dec. 31 of this year. Here’s more information about how it could affect your taxes.

But if you sold your home in 2011, you’ll want your paperwork to reflect the correct date. (I’m not a tax attorney or a CPA, but I’ve been audited by the IRS, and when it comes to my taxes, I prefer to have everything just so.)

The point is, while Fifth Third may have done you a favor by allowing to to short-sell your home, it wasn’t giving you good customer service when it sent you the wrong form and refused to correct it. The collection agency thing, that’s debatable.

When your calls to your Fifth Third contacts went unanswered, you could have tried reaching the bank through its website. Failing that, you could have appealed to one of its executives. (Email addresses at Fifth Third are always An executive e-mail carpetbomb would have been your final option.

Turns out none of that was necessary. I contacted the bank on your behalf and it faxed over your 2011 tax form.

Christopher Elliott

Christopher Elliott is an author, journalist and consumer advocate. You can read more about him on his personal website or contact him at Got a question or comment? You can post it on the new forum.

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  • Fly, Icarus, Fly

    Really? Now it takes an advocate to shame companies into doing the (only) right thing? Doesn’t even look like there’s room for a defensible position for 53.

  • Carver Clark Farrow II

    I couldn’t vote.

    The short sale was not “helping” him. It was a purely business transaction. The bank had a legal obligation to send him the correct tax paperwork. I suspect the branch manager was just being lazy. I don’t think the IRS would take kindly to the bank purposely issuing erroneous tax documents.

    The collection agency has nothing to do with service. He had an unpaid debt, the bank sent it to collections. It was resolved.

  • Elmo Clarity

    I think a quick call to the IRS to report the erroneous tax form would have gotten the bank to clear it up right away. Even telling the manager at the bank you would refer it to the IRS for resolution would probably have gotten it resolved.

  • Christopher Elliott

    That’s a good point. I should have recommended it in the story.

  • emanon256

    This is just wrong, there is no excuse for 5/3 not sending the tax form and then acting blasé about it. I am glad the OP finally got it, but it should not have taken a consumer advocate to get the bank to follow the law. Now the OP has to file an extension or an amended return, which in my experience, is not very fun, and lead me to an audit. Fortunately I had all of my paper work in perfect order, and it should like the OP will as well. But still it’s not fair to the OP that he had to go through this because the bank screwed up and refused to fix it until Chris intervened.

  • deemery

    Actually, I believe banks are regulated by “Comptroller of the Currency” and a call to that office usually gets a bank’s attention.

  • nicole johnson

    I did not choose either, as the collection agency may have been needed – we don’t know the entire situation – but the wrong tax form was just plain wrong. And I would look into the legality of denying the taxpayer the form with the correct year – that sounds fishy to me.

  • RITom

    HA HA, 26 years working with the IRS and that call would be like talking to the wall.

  • RITom

    The 1099-C box one shows the “date canceled”, it is the bank who must issued the 1099-C not the collection agency.
    First he needed to report it on his return even if he got the the 1099-C or not from the bank. He knows all the numbers for 2011. Then if it was issued by the bank in 2012 I would write the IRS a letter along with a copy of the write off to show that the bank made a mistake. If he did get a 1099-C for 2012 I would disclose that it was issued in error on the return and show the date of discharge.
    The bank is required to issue a 1099-C but it is still up to the taxpayer to declare ALL INCOME. The 1099-C is just so the IRS can match up what you reprot on your return with what the the bank stays was the income.
    It is just like a 1099-INT only has to be issued if the interest earned on a bank account is more than $10.00 during the year. But the interst has to be reported on your tax return even if it is under $10.00. Just because the IRS is not informed of the income does not mean the taxpayer does not have declare it. (We call that under statement of income a/k/a fraud).

  • sirwired

    Missing paperwork isn’t the end of the world. If an institution (or employer) sends incorrect paperwork or fails to send paperwork at all, you call the IRS, they’ll make a note in your account, and you can fill out your tax forms as if you received the appropriate paperwork and then include, with your return, an appropriate explanation and your documentation.

  • reuvenavram

    Boo Hoo! I’m awfully sorry he wasn’t able to benefit from the “Deadbeat Specuvesters Tax Relief Act.”

    He should pay his income tax like everyone else. If he had flipped his house in time, he’d be bragging about the killing he made.

  • JenniferFinger

    I don’t think the collections agency thing comes into it. But sending him the wrong form, shrugging it off with “there’s nothing we can do about it” and otherwise ignoring him really is bad customer service.

  • Carver Clark Farrow II

    And how exactly do you know that his loss was because he was house flipping? Considering that the loan forgiveness requires that its on the debtor’s principal residence, it would be irresponsible to make that assumption.

  • lorcha

    Ugh. Double-post.

  • lorcha

    Who your bank’s regulator is depends on the bank. I think Treasury’s website has a way to figure out your bank’s regulator.

    By the way, I’ve found that when a bank has fouled up, and when you threaten to file a formal complaint with their regulator, and have named their regulator correctly, they fix your problem right quick.

  • ExplorationTravMag

    Wow, you don’t have class envy fairly oozing from your pores at all, do ya there, Sparky? Perhaps your post here is more suited for an Occupy Wall Street board?

    Given this is Ohio, and my strong guess is Southern Ohio, I’d say the much more likely scenario is the OP lost his/her job and couldn’t make the payments any longer. In the last three or four years, Southern Ohio has lost several major employers (two that come to mind are NCR and Airborne Express) and many others are laying off simply to stay afloat. The current unemployment rate there is 7.2% but it’s currently farming and county/state fair time so I’m sure this will become higher in the fall once the harvest is in and the fairs close until next year.

    So how about you take the foot in your mouth and leave the room so the grownups can talk amongst themselves. I’m originally from Ohio and my husband and I managed to get out while the getting was good. Those who didn’t are in some extremely dire straits and deserve our help more than your contempt and class envy.

  • RetiredNavyphotog

    If you are having trouble with a bank, contact the Federal Reserve Bank in your area. They usually fix problems pretty quickly. You can file a complaint on the Federal Reserves’ website. The Feds will contact your bank with your complaint.
    Nobody wants the Feds breathing down their throat. The Federal Reserve Bank actually does a very good job fixing problems when you haven’t had any luck.