Non business bad debt - do you NEED to send a 1099C

[Judy rocks]

My client has a non business bad debt, he has the name, address and social security number of the person who didn't pay him what was owed. Is it necessary to send a 1099C when taking a non business bad debt? The bad debt was from a shared rent arrangement and my client was the responsible person on the lease. Does anyone know of any guidance on this area: IRS statements, court cases or what some of our beloved CPE authorities are saying.

[JohnH]

Your client is not a lending institution or one of the other entities listed in the instructions.
There's no reason for him/her to send a 1099c.

Who Must File

File Form 1099-C if you are:

A financial institution described in section 581 or 591(a) (such as a domestic bank, trust company, building and loan or savings and loan association).

A credit union.

Any of the following, its successor, or subunit of one of the following:

Federal Deposit Insurance Corporation,

Resolution Trust Corporation,

National Credit Union Administration,

Any other federal executive agency, including government corporations,

Any military department,

U.S. Postal Service, or

Postal Rate Commission.

A corporation that is a subsidiary of a financial institution or credit union, but only if, because of your affiliation, you are subject to supervision and examination by a federal or state regulatory agency.

A Federal Government agency including:

A department,

An agency,

A court or court administrative office, or

An instrumentality in the judicial or legislative branch of the government.

Any organization whose significant trade or business is the lending of money, such as a finance company or credit card company (whether or not affiliated with a financial institution). The lending of money is a significant trade or business if money is lent on a regular and continuing basis. Regulations section 1.6050P-2(b) lists three safe harbors under which reporting may not be required for the current year. See Safe harbor rules next.

[ATSMAN]

My client has a non business bad debt, he has the name, address and social security number of the person who didn't pay him what was owed. Is it necessary to send a 1099C when taking a non business bad debt? The bad debt was from a shared rent arrangement and my client was the responsible person on the lease. Does anyone know of any guidance on this area: IRS statements, court cases or what some of our beloved CPE authorities are saying.

Can not deduct as a non business bad debt because your client did not actually make a loan with real dollars.

Just because someone does not pay their share of the rent, it is not the same as a non business debt.

[Burke]

ATSMAN is correct. No bad debt here. Money owed but unpaid and never included in income previously cannot be written off on the tax return. See Pub 590 or IRS Tax Topic 453.

[ATSMAN]

We have to be very careful about these non business debt deductions. Taxpayers hear from their friends about all sorts of ways to deduct their losses and then they want us to do the same.

I remember when the First time home buyer credit was in effect, a few of my older clients sold their house to their grand kids and then the grand kids wanted to get the credit. When I showed them the rules, the usual answer was so and so did the exact same thing and got the credit why can't we??