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The Curious Bag
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Form 1099-C is used to report the cancellation of a debt. According to Internal Revenue Service Publication 4681, when a debt for which you are personally responsible is canceled or forgiven, you must report the canceled debt as income.
Type of Debt
Federal government agencies, financial institutions, credit unions and other organizations that lend money must report any canceled debt of $600 or more on Form 1099-C.
Interest
The creditor is not required to report interest that was canceled along with the debt. If interest is reported, the taxpayer is required to include the interest as income only if the interest would not be tax deductible if paid.
Additional Exceptions
Creditors are not required to report debts discharged by personal bankruptcy, owed by foreign debtors or owed because the individual is a related party or guarantor of the debt. Fees, fines, penalties and administrative costs are not reported.
Statement to Debtor
The creditor must give the debtor a copy of Form 1099-C or a suitable substitute.
Gifts or Bequests
If the debt was canceled as a gift or bequest, the taxpayer is not required to report the canceled debt as income.
Source:
Instructions for Forms 1099-A and 1099-C
Resource:
Legal Services of Northern Virginia
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