The Occupy Wall Street initiative has come up with a plan to make consumer debt vanish. Instead of fighting the system they've decided to participate with something called the Rolling Jubilee.
Organizers are buying up consumer debt for pennies on the dollar and instead of collecting on it they are forgiving it. Kind of an interesting idea I must say.
"As a trial run, we spent $466 and successfully bought and abolished $14,000 of medical debt," says the Occupy Wall Street group.
The goal of their current fund drive is to raise $50,000 in cash to buy $1,000,000 in face value debt and then forgive it.
While you might hope they could purchase the debt of one individual and erase it, they say, "We cannot buy specific individual's debt -- instead, we help liberate debtors at random through a campaign of mutual support, good will, and collective refusal."
I suppose they'll be issuing 1099s, as required by the IRS, so those consumers that have their debt forgiven and who are not insolvent will wind up owing taxes on the forgiven debt. Otherwise, I sure hope the Occupy Wall Street folks have a letter in hand from the IRS that definitively says they are exempt from having to file a 1099 on the forgiven debt.
In my opinion the effort is misguided because this strategy can result in those with their debt forgiven, owing the IRS. Otherwise, I'd love to see they have vetted the idea fully before proceeding. If they purchase larges chunks of debt and then have to backtrack later and issue 1099-Cs, it could impact a lot of people.
Consumers that would not be subject to taxes due from debt forgiveness would be insolvent already. Those consumers would most likely benefit from a consumer bankruptcy that discharged all of their debt quickly. Those that would owe taxes on the forgiven debt are most likely going to be solvent, meaning their assets exceed their liabilities, and will not be able to waive the tax due.
According to tax expert and CPA Jim Buttonow, a former IRS examiner, "This is a very complicated area of taxation. The amount that a taxpayer includes in income depends on the facts and circumstances in each case. The fact that a lender does not issue a Form 1099C does not determine whether or not the transaction is taxable. It is the facts and circumstances in each case.
It appears that OWS is not one of the organizations that is required to file a Form 1099C (again, see the instructions for Form 1099C that lists a host of organizations required to file Form 1099C).
If the debtor is going to take a different position on the forgiveness of debt (i.e. it is a gift), they better have substantial authority to do so. My guess is that it will not be applicable as a debt was cancelled, not fully paid for by someone else and intended to be a gift.
My recommendation: have OWS ask the IRS for a private letter ruling on the taxablity. It will provide the debtors a definitive position (assuming the IRS will rule on the issue) and eliminate the confusion."
The Occupy Wall Street outrage seems to be the banks were bailed out and that consumers should not be forced to go into debt to cover basic needs. "It's time for a bailout of the people, by the people," they say. (Source)
For more, watch their video below.
I reached out to the organization last week but as of yet they have not responded.
For more information, visit rollingjubilee.org.
For now I'll have to chalk this up as a nice gimmick with some possible nasty unintended consequences for consumers.