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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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