1099-C Question

[S T]

Oh the "dreaded" 1099 C issue and reporting.

Client called - Received a 1099C for a canceled debt on Bank Credit reported for year 2011.

Actually - according to the client the debt was declared non collectible in 2008 - Client was on disability - legally declared blind in that year and could not work - so could not repay the debt and one of the Credit Counseling Firms - suggested he just not pay and not to file bankruptcy.

Question - It is possible to use the form 982 for Insolvency in year 2011? Client has no assets, however, is now working. If possible, then what time period for figures do I use, current 2011 amounts, or amounts going back to the year defaulted.

The bank was really delinquent in issuing this 1099C, don't you think!

Sandy

[Snaggletooth]

Point of Forgiveness

Sandy, bank is probably late, but they are the ones driving the train, and not the conditions.

May have been "non-collectible" for years, but as long as the loan is on their books this means it is in a state of collection whether realistic or not. They are not supposed to issue the 1099-C until they have actually "forgiven" the loan and have removed it from their books.

The point of forgiveness means he actually legally no longer owes the bank. Prior to forgiveness, he still legally owed them even though debt may not realistically been collectible.

[BP.]

The 1099-C has field for the date of the event. Is there a date there? If so, you could use that to help figure insolvency. See Pub 4681. The insolvency worksheet there starts with the event date.

[JG EA]

But sometimes they hold the debt in the hopes of being paid and do not declare cancelled until giving up on payment. So, in that case I think you have to put the date they actually cancel.

I had a client or two that the FMV was high enough to show in the year 2010 that the debt would not be taxable. But at least in one case the home was sold for much less than the FMV (in 2011) and I worry about the bank still issuing a 1099C. I don't know if that is even possible, but in this case the client could still prove insolvency with either the original date or a 2011 date. (They would not be clear because of the home exclusion because of many refi's,)

I have taken classes on this issue, and done a lot of reading and I'm still very unsure of some specifics.

There was an NATP article that came out last year that confused me. I hope I don't get more of this issue for 2011.

[joanmcq]

Dave Fogel, EA, CPA has written many articles on COD for CSEA & othes, and he has a flowchart on his website that is priceless for it's clarity.

https://www.fogelcpa.com

[MilTaxEA]

Dave Fogel, EA, CPA has written many articles on COD for CSEA & othes, and he has a flowchart on his website that is priceless for it's clarity.

www.fogelcpa.com

I second this. Dave is *the* expert for COD issues.

[JG EA]

Dave Fogel, EA, CPA has written many articles on COD for CSEA & othes, and he has a flowchart on his website that is priceless for it's clarity.

www.fogelcpa.com

I found the article but not the flowchart. Good reference - thanks.

[Gary2]

Client called - Received a 1099C for a canceled debt on Bank Credit reported for year 2011.

Actually - according to the client the debt was declared non collectible in 2008 - ...
...
The bank was really delinquent in issuing this 1099C, don't you think!

They may actually be on time, depending on what "declared non collectible" means. If that means the bank agreed at that time to give up all collection activities permanently, or if that's what they did as a matter of policy (even without a formal agreement with your client), then they should have issued it for 2008. If they just agreed to stop nagging for a while until the client's circumstances change, then it probably isn't an identifiable event.

Thus it's possible they fall under the "non-payment testing period." As I read this in the instructions for the 1099-A/C, if they received no payments for the three years ending 12/31/2011 (but had received at least one payment in 2008), and there are no other qualifying events before 2011, then they're required to issue the 1099-C for 2011. My take is that this rule is to prevent lenders from keeping the debt on their books forever, and more importantly, to keep debtors from avoiding the COD income indefinitely.

Starting in 2012, box 6 on the 1099-C, which had been a checkbox for bankruptcy, will be a code letter indicating the identifiable event. This won't help for the 2011 1099-C, but it's good news for the future.

[S T]

Insolvency

Thanks everyone!
Finally received the 1099-C and the date was 12/31/2011,

Gary's post was right on target - the Bank held it for the 3 year limit
Hope this does not affect the client from being insolvent!

I had forgotten about the Fogel site, so that should be some valuable information as well

Sending the client the worksheets to complete and we will see what transpires.

Sandy