1099-A form

[S T]

Curious question - so seeing what others on the board recommend

Second Home - 1099A issued for 2010 - following the form Box 2 is $ 182K outstanding, and box 4 is $ 101K FMV, and yes Box 5 is personally liable.

Since it is a second home - I have $ 80K debt cancelled and No 1099-C form received as of yet!

Do I report the 1099A transaction on Sched D - showing no gain-no loss to acknowledge receipt of the transaction - so there will not be a CP 2000 notice match in the next couple of years?

Is it important to report the 1099-A transaction on the Tax Return?? Obvioulsy it was issued for a reason.

Anything to be done with the $80K cancellation that the t/p is personally liable for in 2010, since I do not have a 1099-C

Wish these regulations, and scenarios were "much" clearer.

Thanks,

Sandy

[Gary2]

Second Home - 1099A issued for 2010 - following the form Box 2 is $ 182K outstanding, and box 4 is $ 101K FMV, and yes Box 5 is personally liable.

Since it is a second home - I have $ 80K debt cancelled and No 1099-C form received as of yet!

Do I report the 1099A transaction on Sched D - showing no gain-no loss to acknowledge receipt of the transaction - so there will not be a CP 2000 notice match in the next couple of years?

Is it important to report the 1099-A transaction on the Tax Return?? Obvioulsy it was issued for a reason.

Yes, to both: Report on Sch. D, and it is important to head off the CP2000.

Anything to be done with the $80K cancellation that the t/p is personally liable for in 2010, since I do not have a 1099-C

The rule for issuing these is: "If in the same calendar year ... it is not necessary to file both... You may file Form 1099-C only" (from the instructions for Forms 1099-A and 1099-C). In other words, a 1099-C could have 1099-A implications, but a 1099-A does not have 1099-C implications.

That doesn't mean you can ignore the cancellation of debt. At a minimum, explain the implications to the client. Point out that even though the lender is required to get these out by the end of January, it's common for 1099-Cs to be issued very late, which could result in a painful amendment. If there's a chance that the insolvency exemption applies, have the client start collecting the necessary data now.

It's often worth having the client contact the lender to determine whether the 1099-C will be issued for the same year or a future year. Most often, the debt is canceled either the date as the foreclosure or as soon as any statutory right of redemption expires, but not necessarily. Legally, the client is required to report the cancellation of debt income even if they never receive a 1099-C, but you don't want a situation in which they claim it for one year but the lender doesn't actually cancel it until a year or two later.

[BHoffman]

Gary - I'm confused.

I do not see how a client can report CODI unless and until a 1099-C is received.

The 1099-C is the form that confirms the debt was actually cancelled by the lender.

Unless that form is issued to the borrower by the lender, the reality is that the debt is still outstanding and has not been cancelled.

[Gary2]

Gary - I'm confused.

I do not see how a client can report CODI unless and until a 1099-C is received.

The 1099-C is the form that confirms the debt was actually cancelled by the lender.

Unless that form is issued to the borrower by the lender, the reality is that the debt is still outstanding and has not been cancelled.

Would you say the same if the amount of COD was only $500, and hence no 1099-C required? Or if it was a seller-financed mortgage, which would have no 1099-C requirement since they're not in the lending business? Or more simply, the 1099-C is lost in the mail? It's just like being an independent contractor and not getting a 1099-MISC, you're still responsible for the income.

The catch in this case is that while the taxpayer has good reason to know that the debt either had been canceled or will be, they don't know when, so they don't know which year to declare it. If lenders had the reputation of issuing the 1099-Cs reliably and on time, then it might be reasonable to ignore the issue until the form arrives. But lending industry has a poor reputation about timely issuing of these forms. Do you really want to tell a client that they owe six months of P&I on $80K of income?

I'm not saying that they necessarily have to declare the income anyway. I'm just saying that reasonable due diligence calls for contacting the lender to determine when the debt will be canceled.

[BHoffman]

It's just like being an independent contractor and not getting a 1099-MISC, you're still responsible for the income.

Hi Gary - thank you for your answer.

Assuming the lender is required to file form 1099-C, I can disagree by taking the position that a cash basis IC would not report income that has not yet been "received". I don't think the CODI is actually "received" until the 1099-C is issued. What if the lender pursues collection? What if the lender liens other property owned by the borrower? What if the lender bundles up a bunch of loans and "sells" this bad debt to another lender?

Your advice to call the lender and ask about the status of the outstanding debt is well taken.

[David1980]

Hi Gary - thank you for your answer.

Assuming the lender is required to file form 1099-C, I can disagree by taking the position that a cash basis IC would not report income that has not yet been "received".

The scenario would be the taxpayer actually received the cash, they just never got the 1099-MISC.

[Gary2]

Hi Gary - thank you for your answer.

Assuming the lender is required to file form 1099-C, I can disagree by taking the position that a cash basis IC would not report income that has not yet been "received". I don't think the CODI is actually "received" until the 1099-C is issued. What if the lender pursues collection? What if the lender liens other property owned by the borrower? What if the lender bundles up a bunch of loans and "sells" this bad debt to another lender?

Your advice to call the lender and ask about the status of the outstanding debt is well taken.

Technically, it is received when the lender either chooses to cancel it, is required to treat it is canceled, or the operation of law effectively cancels it (e.g., expiration of a filing deadline). As the example of the seller-financed mortgage indicates, there may not even be a 1099-C filing requirement even though the canceled debt income is real.

However, the points you raise are absolutely correct. I'm not suggesting that you should always declare COD income based solely on a 1099-A, simply that you have to explore the issue. If a client wishes to claim it now, to avoid any P&I, and the lender isn't helpful, I'm not sure that the option of claiming it anyway should be immediately ruled out.

[WhiteOleander]

Depending on the state, the lender may have several years before they agree to cancel the debt. So, it may not be cancellation of income yet. They may be planning to go after the money.

[JG EA]

Depending on the state, the lender may have several years before they agree to cancel the debt. So, it may not be cancellation of income yet. They may be planning to go after the money.

Yes, I agree. I just listened to a NATP webinar and the point was made to warn the client that a 1099C may be coming, but if there is not one now the debt is not cancelled. For example if there is Insolvancy - well, the date of the cancellation is then crucial to proving insolvancy.