Portfolio Recovery Associates Facing Debt Collection Suit Over Allegedly False IRS Threat

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Portfolio Recovery Associates LLC is facing a proposed class action lawsuit that takes issue with a tax statement included in a Wisconsin woman’s debt collection letter.

According to the suit, the defendant sent the plaintiff a letter that stated her “current balance due” and offered her three options for a “Savings Plan” involving several payment arrangements that would result in the obligation being considered “settled in full.” The letter allegedly failed to explain how much of the balance was principal and whether any amount would be “written off.” However, the lawsuit continues, the letter supposedly contained the following statements:

“If the principal amount written-off is equal or greater than $600.00, we may be required by the Internal Revenue Code to report this amount and issue a form 1099-C. If you have any questions regarding your personal taxes, it is recommended that you consult with a certified public accountant or other tax professional.”

The case argues that the plaintiff, upon reading the letter, would have no idea whether the amount “written-off” would be greater than $600.00 because the defendant failed to provide sufficient information about her alleged debt. Further, a public accountant or tax professional would be unable to assist the plaintiff without a clear idea of how much of the balance was principal and how much was being written off, the suit alleges. Moreover, most consumers in the plaintiff’s situation would be unable to afford such counsel, the lawsuit points out, and would be pressured into paying off the full balance of the alleged obligation to avoid extra expenses and possible tax consequences.

Notably, the case mentions that the plaintiff and others who are “insolvent” would not be subject to the aforementioned tax reporting and would not need to hire a professional to advise them had the defendant been truthful regarding the consequences of accepting a settlement offer.