Lawsuit: Client Services Falsely Threatens IRS Reporting

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Client Services, Inc. is on the receiving end of a proposed class action lawsuit that alleges violations of the Fair Debt Collection Practices Act (FDCPA). The plaintiff says she received a collection letter from the defendant that presented a settlement offer and stated, “Whenever $600 or more is forgiven as a result of settling a debt for less than the balance owed, the creditor may be required to report the amount forgiven to the IRS on a 1099C form, a copy of which would be mailed to you by the creditor for the appropriate tax year.”

The case argues that the letter is misleading and deceptive because it falsely implies to the unsophisticated consumer that any debt forgiveness exceeding $600 must be reported to the IRS. According to the suit, the letter fails to mention that the debt forgiveness must equal $600 or more of principal, not including interest or fees, to trigger the IRS' reporting requirement.

“Therefore,” the complaint argues, “plaintiff could negotiate with defendant to pay all but $599.00 in principal, plus all of the interest, fees and charges included in the amount forgiven, without triggering a mandatory Form 1099-C filing by the creditor.”