I received a letter from Chase Cardmember Services offering a settlement of $1,303 on a debt of $5,211. The account was charged off as a bad debt three years ago. I've hit hard times because of my health and cannot pay the full amount, but I finally am able to pay the $1,303, after saving the little cash I have for those three years.

Quoting the Chase letter: "...we will accept a reduced payment of at least $1,303 if you respond by (date). When you pay this amount, your account will be reported as settled to the credit-reporting agencies upon completion of your settlement. Payments or credit in excess of this amount will be applied against your entire outstanding balance.... We are required by IRS to provide information about certain amounts that are discharged as a result of a cancellation of a debt on a form 1099-C. If we are required to notify the IRS, you will receive a copy of the form 10999-C that is filed with IRS."

I've read lots of posts that have taught me to make sure everything is in writing and I use a cashier's check or money order. I'll send a letter with the money, and won't give money over the phone.

Is there any way I can get Chase to report the debt as paid in full? If not, what can I do to get the most favorable note on my credit report about this? Why do they say "discharged as the result of a cancellation"? Does that mean they won't try to collect more later?
If I am able to pay the balance later, will I get my tax money back for taxes paid on the amount reported on the 1099-C?