IRS Form 1099-C is used to report Cancellation of Debt. Lenders use Form 1099-C to report to the borrower and the IRS that a debt of $600 or more has been canceled or forgiven.
Form 1099-C is an important form for the debtor. If a creditor has discharged a debt owed by the borrower, then the borrower is required to include the forgiven debt on the “Other income” line of their 1040 form, even if the amount is less than $600.
The top part of Form 1099-C asks for the creditor name, address and then TIN. This is followed by the debtor name, address and TIN.
There are 7 boxes on Form 1099-C. Each box is discussed below:
Account number. This is just a unique number the creditor uses to distinquish the borrower.
Box 1. Shows the date of the identifiable event.
When I think of the words “identifiable event”, I say to myself “what started it all”. The borrower might have filed bankruptcy, was foreclosed on or the debt reached a statue of limitations on a certain date. Box 1 shows the date the earliest identifiable event occurred or the date of an actual discharge.
Box 2. Shows the amount of debt discharged. This is an important box for the borrower because it is the amount the borrower is required to show on their 1040 and will be treated as income. If the borrower disagrees with this amount, then they should contact the creditor.
Box 3. Shows the interest if included in Box 2.
Box 4. Shows a description of the debt or property.
Box 5. Shows whether the borrower was personally liable for repayment of the debt when the debt was created or at the time of the last modification.
Box 6. Shows the identifiable event code. The codes are: A – Bankruptcy; B – Other judicial debt relief; C – Statute of limitations or expiration of deficiency period; D – Foreclosure election; E – Debt relief from probate or similar proceeding; F – By agreement; G – Decision or policy to discontinue collection; H – Expiration of nonpayment testing period; or I – Other actual discharge before identifiable event.
Box 7. Shows the fair market value of the property.
Copy B of IRS Form 1099-C is sent to the borrower by the end of January. Copy A of Form 1099-C must be paper filed along with Form 1096 by the end of February or the creditor can electronically file Copy A by the end of March. Copy C is retained by the creditor for their records.
