I reached a settlement agreement, paid it and they closed my account as paid in full, but now they have sent me a 1099 C. Can they do that?

[BlutosPackers]

It was very high interest LOC from CashNetUSA which I could no longer afford due to financial problems. I reached a settlement agreement and they agreed to an amount and monthly payments until paid off at which time they would close the account as paid in full but I would not be allowed to use their service again. I paid it off and received the notification of the account being paid in full but now they have filed a 1099 C. I want to know if that is legal and what rights do I have in this?

[CherylW]

Yes, it is legal.  This, from the IRS:

In general, if you have cancellation of debt income because your debt is canceled, forgiven, or discharged for less than the amount you must pay, the amount of the canceled debt is taxable and you must report the canceled debt on your tax return for the year the cancellation occurs. The canceled debt isn't taxable, however, if the law specifically allows you to exclude it from gross income. These specific exclusions will be discussed later.

The exceptions include a gift, certain student loans, canceled debt that would have been deductible, and others that don't sound like your situation.

Here is the whole text of Tax Topic #431:

Tax Topic 431, Cancellation of Debt, 1099-C

To enter it into Turbo Tax:

1.  Click Federal on the left-hand side menu.

2.  Click Income across the top.

3.  Scroll down to Less Common Income and click Show more.

4.  Click Start or Revisit by Miscellaneous Income, 1099-A, 1099-C.