1099-C Forgiveness of Debt Income - Explanation
1099-C, Forgiveness of Debt Income
A 1099-C is a Federal (IRS) tax form for cancellation of debts. Sometimes a creditor, after trying to collect from you, will decide that the debt is uncollectable and will "charge off" the debt in order to get credit for a loss as a tax break. The IRS normally equates debts as income after you receive a 1099-C, thus requiring you to pay income taxes on it. However, if the debt was discharged in bankruptcy before the 1099-C was issued or if you were "insolvent" when the 1099-C was issued, the "charged-off" debt is not considered as income for income tax purposes. Once a debt is discharged in bankruptcy it is extinguished, it does not exist anymore. There is no debt to be forgiven. Taxpayer responses to the IRS should always be courteous, detailed with facts, which support your position and submitted within allowed time. The Tax Code, Title 26, § 108. Income from discharge of indebtedness provides five (5) exclusions from gross income, coordination and exclusions and the reduction of tax attributes (rules and calculations). It is advised to consult legal or tax professionals.
A 1099-C is a Federal (IRS) tax form for cancellation of debts. Sometimes a creditor, after trying to collect from you, will decide that the debt is uncollectable and will "charge off" the debt in order to get credit for a loss as a tax break. The IRS normally equates debts as income after you receive a 1099-C, thus requiring you to pay income taxes on it. However, if the debt was discharged in bankruptcy before the 1099-C was issued or if you were "insolvent" when the 1099-C was issued, the "charged-off" debt is not considered as income for income tax purposes. Once a debt is discharged in bankruptcy it is extinguished, it does not exist anymore. There is no debt to be forgiven. Taxpayer responses to the IRS should always be courteous, detailed with facts, which support your position and submitted within allowed time. The Tax Code, Title 26, § 108. Income from discharge of indebtedness provides five (5) exclusions from gross income, coordination and exclusions and the reduction of tax attributes (rules and calculations). It is advised to consult legal or tax professionals.