What is IRS Form 1099-C?

Form 1099-C, Cancellation of Debt, is filed when an applicable entity cancels a debt that is owed to them. This article goes over who must file Form 1099-C, when to file it, what information is required, and other common questions. 

What Is Form 1099-C?

Form 1099-C, Cancellation of Debt, is filed for each debtor for whom you canceled $600 or more of a debt owed to you if:

1. you are an applicable entity (described in Who must file Form 1099-C?); and 
2. an identifiable event has occurred (described in When is a debt cancelled?). 

The form should be filed with the IRS regardless of if the debtor will be required to report the debt as income or not. 

Important definitions

• Test Year – A test year is a tax year of the organization that ends before July 1 of the previous calendar year.
• Debt – A debt is any amount owed to you, including stated principal, stated interest, fees, penalties, administrative costs, and fines. The amount of debt canceled may be all or only part of the total amount owed. However, for a lending transaction, you are required to report only the stated principal. 

Who must file Form 1099-C?

Only certain entities are required to file Form 1099-C. According to the IRS, you must file a Form 1099-C if you are any of the following: 

File Form 1099-C if you are any of the following:

1. A financial institution described in section 581 or 591(a) (such as a domestic bank, trust company, building and loan association, or savings and loan association).
2. A credit union.
3. Any of the following, its successor, or subunit of one of the following.
   1. Federal Deposit Insurance Corporation.
   2. National Credit Union Administration.
   3. Any other federal executive agency, including government corporations.
   4. Any military department.
   5. U.S. Postal Service.f. Postal Rate Commission.
4. A corporation that is a subsidiary of a financial institution or credit union, but only if, because of your affiliation, you are subject to supervision and examination by a federal or state regulatory agency.
5.  A federal government agency including:
   1. a. A department,
   2. b. An agency,
   3. c. A court or court administrative office, or
   4. d. An instrumentality in the judicial or legislative branch of the government.
6. Any organization whose significant trade or business is the lending of money, such as a finance company or credit card company (whether or not affiliated with a financial institution). The lending of money is a significant trade or business if money is lent on a regular and continuing basis. Regulations section 1.6050P-2(b) lists three safe harbors under which reporting may not be required for the current year. 

IRS Form 1099-C Instructions

Safe Harbor Rules

The IRS provides three safe harbor rules that outline when an entity is not considered to be in the business of lending money. These are: 

1. No prior year reporting required – An organization will not be considered in the business of lending money for the current year if it didn’t have to file last year and if, in the most recent test year, it earned less than both 15% of its total income and $5 million from lending money.
2. Prior year reporting requirement – An organization that had prior year Form 1099-C reporting requirements will not be considered in the business of lending money for the current year if, for each of the 3 most recent test years, its gross income from lending money is less than both 10% of its gross income and $3 million. 
3. No test year – Newly formed organizations are not considered to be in the business of lending money, even if the organization lends money on a regular and continuing basis.
   1. This safe harbor does not apply to an entity that was created mainly to manage or hold loans that were created by another entity. 

When is a debt cancelled?

A debt is considered canceled on the date a qualifying event happens, or earlier if you choose to report it in the year the debt was actually discharged. These qualifying events, known as “identifiable events,” for Box 6 include:

Code	IRS Language	Simplified Definition
A	A discharge in bankruptcy under title 11 of the U.S. Code. Note: Some exceptions may apply.	Bankruptcy Discharge Debt is discharged in bankruptcy under federal law (Title 11).
B	A cancellation or extinguishment making the debt unenforceable in a receivership, foreclosure, or similar federal nonbankruptcy or state court proceeding.	Court Judgment (Non-Bankruptcy) Debt becomes unenforceable due to receivership, foreclosure, or other federal/state court proceeding.
C	A cancellation or extinguishment when the statute of limitations for collecting the debt expires, or when the statutory period for filing a claim or beginning a deficiency judgment proceeding expires. Expiration of the statute of limitations is an identifiable event only when a debtor’s affirmative statute of limitations defense is upheld in a final judgment or decision of a court and the appeal period has expired.	Statute of Limitations Expired Debt becomes unenforceable after the statute of limitations expires and the debtor’s defense has been upheld in a final court decision.
D	A cancellation or extinguishment when the creditor elects foreclosure remedies that by law extinguish or bar the creditor’s right to collect the debt. This event applies to a mortgage lender or holder who is barred by local law from pursuing debt collection after a “power of sale” in the mortgage or deed of trust is exercised.	Debt Extinguished by Foreclosure Law Debt is canceled because the creditor exercised foreclosure remedies that legally prevent further collection (such as a power of sale in a mortgage).
E	A cancellation or extinguishment making the debt unenforceable under a probate or similar proceeding.	Probate Discharge Debt is canceled or becomes unenforceable due to probate or similar legal proceedings.
F	A discharge of indebtedness under an agreement between the creditor and the debtor to cancel the debt at less than full consideration (for example, short sales).	Debt Settled for Less Than Full Amount Debt is discharged under an agreement between the creditor and debtor (e.g., short sale or negotiated settlement).
G	A discharge of indebtedness because of a decision or a defined policy of the creditor to discontinue collection activity and cancel the debt. A creditor’s defined policy can be in writing or an established business practice of the creditor. A creditor’s established practice to stop collection activity and abandon a debt when a particular nonpayment period expires is a defined policy.	Creditor Stops Collection and Cancels Debt Debt is discharged because the creditor has a policy—written or by business practice—to stop collection attempts after a certain time.
H	Other actual discharge before identifiable event.	Other Actual Discharge Before Identifiable Event Debt is actually discharged before any of the other identifiable events occur.

What information is included on Form 1099-C?

When you complete Form 1099-C, you will include the following key details:

• Creditor information
  • Name
  • Taxpayer Identification Number (TIN)
  • Full address
  • Contact phone number
• Debtor information
  • Name
  • Taxpayer Identification Number (TIN)
  • Full address
  • Account number (if applicable)
• Cancelled debt information
  • Box 1 – Date of identifiable event
  • Box 2 – Amount of debt discharged
  • Box 3 – Interest, if included in box 2 
  • Box 4 – Debt description
  • Box 5 (Checkbox) – Check here if the debtor was personally liable for repayment of the debt
  • Box 6 – Identifiable event code
  • Box 7 – Fair market value of property

When is Form 1099-C due?

Form 1099-C is due in the calendar year following the year in which the identifiable event occurs. 

However, if you cancel a debt before an identifiable event occurs, then you may choose to report it in the same year as the cancellation. Once you file, you do not have to file again even if an identifiable event occurs later. 

Please note there are exceptions where debtors may not be required to report a Form 1099-C. These can be found on the IRS instructions for Form 1099-C. 

The due date for Form 1099-C is typically as follows: 

Federal IRS Deadline	Due Date
Furnishing Recipient Copies	January 31
Paper Filing with the IRS	March 2
Electronic Filing with the IRS	March 31

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Paper Filing

When paper filing Forms 1099-C, you must include a Form 1096 transmittal as well.

Important note: The IRS has a 10-form threshold for paper filing. You may choose to submit a paper filing to the IRS if you have less than 10 forms in total. If you are responsible for filing more than 10 forms, then you are required to file electronically.

Frequently asked questions

Is the debtor’s tax-treatment my concern when I file Form 1099-C?

No. The Instructions explicitly state “Form 1099-C must be filed regardless of whether the debtor is required to report the debt as income.”

What is an “identifiable event”?

The Instructions define an identifiable event as one of a number of events that indicate the creditor can no longer expect repayment (e.g., discharge in bankruptcy, expiration of statute of limitations, decision by creditor to discontinue collection, etc.).

Does the $600 threshold always apply?

Yes, the form is required if you cancel $600 or more (and you are an applicable entity and an identifiable event occurred).

What if I cancelled debt of less than $600?

If less than $600, you generally are not required to file Form 1099-C under the specified IRS threshold. However, you must still verify whether an identifiable event occurred and whether your entity is required under the “Who Must File” guidance.

Can I use a substitute form to furnish to the debtor?

Yes, you may provide a substitute statement to the debtor, but the substitute must conform to the format and content requirements of the official form.

Do I need to file Form 1099-C if the debt was cancelled due to identity theft (fraudulent debt)?

No. The Instructions say: “Do not file Form 1099-C when fraudulent debt is canceled due to identity theft.”

Conclusion

For creditors or other applicable entities, filing Form 1099-C is a critical compliance step when you cancel a debt of $600 or more and an identifiable event has occurred. 

The IRS requires you to file regardless of whether the debtor will report the cancellation as income. 

By understanding what Form 1099-C is, your organization can ensure accurate and timely compliance with the IRS.

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