This sounds outrageously risky. Unless you have written, signed approval from the IRS for your plan I wouldn't dare make a move. Once you're in their sights it's damn near impossible to get away. In the current economic climate it doesn't take much to convince a jury you deserve to go to prison for tax evasion and/or fraud. A pro-bono lawyer can not stand against the legions of the IRS.
The requirements of the 1099-c, Forgiveness of Debt is for any amount forgiven over $600. The argument for not filing a 1099-c for amounts over 600.00 is that one is not likely to know how much principle was forgiven. This is an important part of the code for the 1099-c. Believe it or not. Most Credit Issuers do not know the answer to that question. Lastly, how would the IRS know that a debt was forgiven? These transactions of buying debt are not reported to the IRS. I have been buying debt for 11 years and wrote a book on the subject.
