Bankruptcy and 1099-C

[appelman]

Are 1099-C's generally issued in bankruptcy cases? I have a client who has gone through a Chapter 7 bankruptcy in 2011. The court documents list a zoo of discharged debts, but no 1099-C's have been received. Would it be reasonable to treat the court documents as equivalent to a 1099-C, report the discharged debt on line 21, and then back it out, referencing a completed Form 982?

[David1980]

Generally wouldn't receive a 1099-C for a debt discharged through bankruptcy. I don't report them on the return at all.

Even if they do receive a 1099-C, I make no entries on line 21. Following the detailed examples in Publication 4681 the only place it would appear if you are excluding it is on the 982. Nothing showing on 1040.

[Gary2]

In theory, it's the bankruptcy estate and not the individual who has the discharged debt, and thus in theory the 1099-Cs belong to the estate. If the estate is required to file a tax return, then it will report the tax attribute adjustments on the 982. The adjusted tax attributes then transfer back to the individual once the estate is dissolved. If there is no such estate tax return, then the 982 and associated attribute adjustments, if any, will have to be filed on the individual's return for the year of discharge.

But, as a former software manager of mine was fond of saying: In theory, there's no difference between theory and practice. In practice, there always is. So it entirely possible that the 1099-Cs will be issued erroneously, late, and to the individual.

Two other points: First, I don't think it's ever necessary to report excluded COD income on line 21. Where would you back it out? Simply omit the income on the face of the 1040, and provide the 982.

Second: A chapter 7 discharge normally doesn't enumerate a list of discharged debts, because it's a total discharge. Instead, there's a list of creditors in the original filing. The discharge will normally just say that all such debts are discharged - unless the individual has signed any sort of explicit release to allow the debt to continue past the bankruptcy. I suppose that some bankruptcy courts may have different paperwork processes, or that special circumstances might require an explicit list of discharged debts. Or it could just be that the list of creditors and debts in the original paperwork was just being described informally as the list of discharged debts. If the latter, make sure that there's an actual discharge, and note the date.