What is a Form 1099-C?

• Apr 27, 2022
• By Mike Hales

In an effort to clarify the issue, In October 2005, the IRS Office of Chief Counsel issued the following: “You state that, although your organization does not actively pursue collection on all of the debts it purchases, it intends to pursue collection in the future.  You state that if your organization is required to file Forms 1099-C, “Cancellation of Debt,” its ability to collect will be significantly impaired because: (1) courts may view the filing of a Form 1099-C as a written admission on the part of your organization that the debtor no longer owes the debt; and (2) a debtor may be less willing to make payments if he or she receives a copy of the Form 1099-C.   To briefly address your concerns about whether courts may view the filing of a Form 1099-C as a written admission that the creditor discharged the debt, and that debtors would be less willing to pay after your organization files a Form 1099-C, you should note the following.  The Internal Revenue Service does not view a Form 1099-C as an admission by the creditor that it has discharged the debt and can no longer pursue collection.” Even in the face of this position by IRS, courts have been divided about whether the issuance of a Form 1099-C by a creditor actually cancels the debt. While some courts have upheld the view that the filing of a Form 1099-C is for informational purposes only, that the debt has not been cancelled, and that IRS does not have the authority to cancel debt, others have viewed the issuance of a 1099-C as evidence of the creditor’s intent that the debt is extinguished. This has left credit unions between a rock and a hard place:  the federal requirement to issue a 1099-C vs. the right to pursue collection of a debt lawfully owed. Resolving the dilemma.  Finally.                 After the issuance of proposed rulemaking in 2014, the....--> BY MIKE HALES The issuance of IRS Form 1099-C “Cancellation of Debt” by credit unions has been the subject of controversy for several years. In December 1996, the Treasury Department and IRS issued final regulations requiring the issuance of a Form 1099-C upon the occurrence of an “identifiable event” and listed eight identifiable events that would trigger the obligation: (1) a discharge of indebtedness under the Bankruptcy Code; (2) a cancellation or extinguishment of an indebtedness that renders the debt unenforceable in a receivership, foreclosure, or similar proceeding in a federal or state court…; (3) a cancellation or extinguishment of an indebtedness upon the expiration of the statute of limitations for collection…; (4) a cancellation or extinguishment of an indebt...

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