compliance guide: 1099-c - insidearm.com
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Compliance Guide:
1099-c
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Compliance Guide: 1099-c Page | 1 © 2014 insideARM.com
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Legal Disclaimer
This information contained in this report is not intended to be legal advice and may not be used as legal advice. Legal advice must be tailored to the specific circumstances of each case. Every effort has been made to assure this information is up-to-date. It is not intended to be a full and exhaustive explanation of the law in any area, however, nor should it be used to replace the advice of your own legal counsel.
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Contents
Introduction .................................................................................................................................................. 4
Who Must File? ............................................................................................................................................. 5
Identifiable Events: When is a Debt Canceled? ............................................................................................ 6
Filling Out the Form ...................................................................................................................................... 8
Forms and Filing: Deadlines to the Debtor ............................................................................................... 8
Forms and Filing: To the IRS .................................................................................................................... 10
Keeping copies ........................................................................................................................................ 11
Due dates ................................................................................................................................................ 11
When NOT to File a 1099-c ..................................................................................................................... 11
Coordinated Filing ................................................................................................................................... 11
What Happens Once a 1099-c Has Been Issued? ....................................................................................... 13
Appendices .................................................................................................................................................. 14
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Introduction The Internal Revenue Service requires a 1099c to be filed when an entity cancels $600 or more in stated principal for a consumer. 1099-c forms are of most concern to creditors and debt buyers; however, collection agencies that settle a consumer’s past due account can also find themselves needing to file a 1099-c with the IRS. Filing a 1099-c alerts the IRS that a consumer is no longer liable for x amount of the full debt. 1099-c filings are a source of great confusion. The filing may imply that a debt has been discharged, causing confusion not just among debtors, but among the courts. What does it mean, in terms of the consumer’s obligation, when such a form is filed? Some cynically see the filing of 1099-c forms as “wilfully confusing” consumers – something about which the FDCPA has strict things to say. In some cases, the consumer may feel the full debt has been discharged. Additionally, the consumer may not understand the tax implications of a 1099-c. If a consumer’s debt is entirely written off by the creditor (if all collection efforts have failed, for instance), and that amount is over the $600 threshold mentioned above, a 1099-c will be issued. What initially may appear as a relief to the consumer, when he is told that all, or a large portion, of his debt has been, in effect, canceled, can later become a nasty surprise at tax time when he discovers that he has to pay taxes on the “forgiven” amount. The IRS counts that forgiven debt as revenue to the consumer, and taxes it accordingly. A debt buyer is required to file IRS Form 1099-C, Cancellation of Debt, for each debtor for whom it cancels $600 or more in stated principal of a debt if any of certain “identifiable events” occurs. If a debt is canceled before an identifiable event occurs, a debt buyer may choose to file the Form 1099-C for the year of cancellation.
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