Who Receives a Form 1099-C?

IRS Form 1099-C, Cancellation of Debt, is used to report the cancellation of $600 more in debt by applicable financial entities or if an identifiable event occurs.

What’s new for Form 1099-C?

Beginning in January 2022, the IRS has switched to a continuous use form and instructions for Form 1099-C. These will only be updated as needed, instead of annually.

Who receives a Form 1099-C?

A Form 1099-C, Cancellation of Debt, is received by individuals or entities when a creditor cancels or forgives a debt of $600 or more that they owe.

Filing Requirements

Form 1099-C must be filed by entities that have canceled a debt of $600 or more, if they meet the following:

• They are an entity listed in “Who Must File”; and
• An identifiable event has occurred, It doesn’t matter if the actual cancellation is on or before the identifiable event.

Who Must File

According to the IRS, the following entities must file Form 1099-C:

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.
   a. Federal Deposit Insurance Corporation.
   b. National Credit Union Administration.
   c. Any other federal executive agency, including
   government corporations.
   d. Any military department.
   e. 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:
   a. A department,
   b. An agency,
   c. A court or court administrative office, or
   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, Pg. 3.

Identifiable Event

A debt is considered cancelled on the date an identifiable event occurs or the date of the actual discharge of debt, if earlier. The following are considered identifiable events:

1. A discharge in bankruptcy under title 11 of the U.S. Code. For information on certain discharges in bankruptcy not required to be reported, see Exceptions, later. Enter “A” in box 6 to report this identifiable event.
2. A cancellation or extinguishment making the debt unenforceable in a receivership, foreclosure, or similar federal nonbankruptcy or state court proceeding. Enter “B” in box 6 to report this identifiable event.
3. 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. Enter “C” in box 6 to report this identifiable event.
4. 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. Enter “D” in box 6 to report this identifiable event.
5. A cancellation or extinguishment making the debt unenforceable under a probate or similar proceeding. Enter “E” in box 6 to report this identifiable event.
6. 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). Enter “F” in box 6 to report this identifiable event.
7. 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. Enter “G” in box 6 to report this identifiable event.
8. Other actual discharge before identifiable event. Enter “H” in box 6 if there is an other actual discharge before one of the identifiable events listed above.

IRS Form 1099-C Instructions, Pg. 4.

What information is required to file?

The information required for preparing Form 1099-C includes basic information on the creditor and the debtor and information about the debt that was cancelled.

As with all filings, it’s important to check the information for accuracy to avoid any potential errors and penalties.

Conclusion

Once you’ve determined who should receive a Form 1099-C, you can:

• Gather information to prepare Form 1099-C
• Check your forms for accuracy
• E-file and distribute forms

Review the deadlines today!

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