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I became totally and permanently disabled after a working for 44 years. I returned to college late in life (while working full-time) to fulfill my dream of becoming an RN and at that time found it necessary to secure student loans. Three years after being declared totally and permanently disabled my student loans were discharged. In January 2013 we received a 1099-C form declaring said student loans that were discharged however that amount could be considered as income for 2012. This was a large amount of money and we live on two pensions and social security income.

I started looking on the internet for information regarding 1099-C and felt that this was something that we could not handle alone. I made phone calls locally to a very reputable tax group in a city near us and they said it would cost $500 for an appointment and that they really prefer to do corporate taxes and they referred me to a local person who had worked for them at one time, we called and explained the situation and an appointment was made and then the comment was made that "I will have to do some research on this" and flags immediately went up and we called back and cancelled that appointment. I had been researching the IRSwebsite and every place else I could think of and I was not comfortable doing our own taxes this year. We called another local tax preparer that we had used in the past and made an appointment, however prior to the appointment, while still seeking information regarding our situation,

I came across a website for Gary l. Bode, MSA, CPA, PC in Wilmington, NC. I called Mr. Bodeand explained our situation and asked if he could help. He spoke very knowledgeably regarding the situation and stated that yes; he felt he could help us. As Mr. Bode was in North Carolina and we were in New York I scanned all of our documents including back-up documents for all of our claims and forwarded all to him. Mr. Bode kept in touch with us via email; we have spoken on the telephone several times and have become very comfortable with his knowledge and professionalism. Also, as I am a true "worrier" I have continued looking into information regarding our tax situation and I came upon another web page for Mr. Bode that included testimonials which spoke of his experience with this type of tax situation as it became prevalent during the recession. This reinforced in our minds that we had made the right decision in hiring this person as our tax preparer.

I share all of this as our taxes are now ready to be filed (we do owe tax for 2012 but not the astronomical figure we thought we were facing), and we are confident that they have been prepared with the utmost care by a gentleman who has an excellent working knowledge of the situation we faced and the tax laws that were applicable to said situation.


Bill and Carol

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Debt Cancellation CPA | Can the Bank still try to collect after Form 1099-C is issued? | Form 1099-A vs Form 1099-C

1099-C Form 1099-A Form 982

With Form 1099-A the lender can still pursue you for the debt. Sometimes Form 1099-C still allows the banks to pursue you for the debt. So much for Form 1099-C’s name; Cancellation of Debt. Go figure. (910) 399-2705.

Debt cancellation CPAs see confusion with Form 1099-C and Form 1099-A.  So here’s some answers for questions I’m often asked.

Can the Bank still try to collect after they issue Form 1099-C?

Well the IRS says yes, sorta kinda, maybe sometimes. A Tax Court case says no. It’s a typical IRS gray area. Form 1099-C’s name is Cancellation of Debt, so it’s logical to assume it means the debt is actually cancelled. Not so, in some cases. The IRS requires an institution to file Form 1099-C when an identifiable event occurs. Here’s the list of IRS codes for identifiable events:

  • 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:  Decision or policy to discontinue collection.
  • I:   Other actual discharge before identifiable event.

Note some identifying events on Form 1099-C don’t require actual cancellation of the debt.  Many Form 1099-C(s) don’t even list an identifying event in Box 6. Naturally, the IRS wants see a Form 1099-C issued ASAP because they have a shot at collecting tax on the cancelled debt. So they jump the gun and leave further debt collection by the bank open. Remember the banks have to correct Form 1099-C if they collect anything on the debt, which means you can amend your tax return.

So issuing Form 1099-C and actual debt cancellation can be two separate events.

How late can a bank send me a Form 1099-C?

This week, I’ve already had three calls from new Clients stating they’re expecting a 2012 Form 1099-C in May or early June. Form 1099-C often arrives in a future tax year. And by then it may be harder to exclude debt cancellation from taxable income.

I’ve already filed and just received a Form 1099-C?

Here you would amend the tax return to include Form 1099-C and Form 982 showing how you  excluded cancellation of debt from becoming taxable income.

Does Form 1099-A report cancellation of debt?

No. So you wouldn’t use Form 982 with Form 1099-A. It reports the transfer of ownership to the lender. Even though you were forced to relinquish the asset it counts as a sale. So you have to report it to the IRS.

Will I pay tax on a Form 1099-A?

The “sale” of the asset could be a gain or loss. A gain is taxable. But in my experience, by the time you’re forced to transfer ownership, you have a loss on Form 4797.

“Many Form 1099-A Clients generate a loss on the “sale” of the asset. Sometimes for $100,000+. In the case of rental property, the loss may offset other taxable income.”
– Gary Bode, Cancellation of Debt CPA and tax accountant

Here’s a link to our most popular posting on Cancellation of Debt: Form 982, Form 1099-C and Insolvency. For a complete list, please click on 982, 1099-C, 1099-A and 4797 in the drop down Forms list in the right sidebar.

I’m an seasoned CPA with loads of experience with Debt Cancellation.  For a free consult, call us at (910) 399-2705.

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6 comments to Debt Cancellation CPA | Can the Bank still try to collect after Form 1099-C is issued? | Form 1099-A vs Form 1099-C

  • Jeff P.

    My home was foreclosed and sold at Sheriff sale in August of 2012. I did not receive a 1099-S, 1099-A, or 1099-C. I knew the foreclosure sale was considered a sale transaction and reported the sale on 4797. I had no indication that I would be released from the deficiency. In fact, I expected to receive a Summons.

    Now, in January of 2013, I received a 1099-A with an Acquisition date of 4/5/13 and a 1099-C for the deficiency amount.

    I have no problem with reporting the cancelled debt on my 2013 return. I’m wondering what to do about receiving the 1099-A now. Do I amend the 2012 return to remove the sale and then report on 2013? Do I request a corrected 1099-A? I really think my 2012 was accurate.

    Any advice on moving forward?

    • Hi Jeff. Sorry there’s more hassle about your former home. I’d put the Form 1099-C, Cancellation of Debt, and 1099-A on the 2013 return. Generally there shouldn’t be taxable gain on the “sale” of the house. The cancelled debt seems easy enough as well. Hope that helps.

  • Cindy

    Hi Gary,

    My primary residence foreclosed in 2013 in the state of VA. The bank sent a 1099a which was filed by our tax accountant for that year. Now a debt collector is pursuing myself for the deficiency which is 38k. The bank sold the debt to this collector…my question is can they take me to court and win and also if I do settle with them for a lesser amount will or can they issue a 1099c??? Thank you in advance for your help.

    • You still owe the 38K. If they settle for less you’d have a Form 1099-C, Cancellation of Debt, issued, e.g. you pay 18K you’ll receive a Form 1099-C for 20K (38-20). Then you have the right to try to exclude that 20K from taxable income using Form 982, Reduction of Tax Attributes. Hope that helps Cindy.

      • Cindy

        Hi Gary.
        Thanks for your reply. Form 982 was used for the 1099 amount that the bank had sent out for tax year 2013/filed in 2014… 213k was the amount discharged on 982 form. How can this amount be reported twice?? The house sold for 201k so basically 12k would be reported twice??? The other 26k was mortgage not paid and misc fees.

        • The bank issued each of you a Form 1099-C. That’s called severally liable. So there’s really just on Form 1099-C. But let’s say you cover your 50% and the other party doesn’t, you’re still on the hook for that 50% too. Hope that helps.

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