IRS 1099C Cancellation of Debt
What you need to know about the IRS 1099-C Form: Canceled Debt.
TLDR;
Many so-called “Experts” claim you fill out the 1099C to get rid of debt, loans & credit cards when you submit to the IRS.
The 1099C Form is sent to you by lenders when the lenders have forgiven or written off the debt that you owed.
Generally, the amount of Canceled Debt on IRS Form 1099C is taxable income to you.
You can apply exclusions to the Income on the IRS Form 1099C, which is applied through your tax return.
If you do not include the 1099C amounts in your tax return, the IRS will make an adjustment through an Automated Under Reporting (CP2000 Notice)
Can I file the 1099-C with the IRS to get rid of my personal debt with Loans & Credit Cards?
There are many videos on Tiktok that have these “Experts” claiming that submitting the 1099C Cancelation of debt Income will get rid of all of your debt. They boldly claim to walk into the bank, applying for a loan, receiving the funds with the IRS Form 1099C already mailed out to the IRS so that the funds they will get will be automatically wiped away.
You know the saying if something is too good to be true… Well, in this case, the claims are absolutely false.
What is the 1099-C Cancellation of Debt Income?
The IRS Form 1099C is sent to you by lenders when they have forgiven, discharged, or written off a debt that you owe. The 1099C is commonly used by:
Mortgages when your home is foreclosed
Car Repossessed by Lender
Timeshare Loans Written off
Credit Card Debt Discharged by Bank
There are exclusions to the 1099C Debt Cancellation Income
One of the exclusions is the insolvency exclusion. Insolvency is the financial position where your Income & Assets is less than your Expenses & Net value of assets.
In other words, when you are financially upside down. I am providing an insolvency worksheet that can evaluate whether you are insolvent & if possibly can exclude the 1099C income from your tax return.
1099 -C Insolvency Worksheet
IRS Form 1099-C FAQs
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The IRS 1099C is used by lenders when they have discharged, forgiven, or written off a debt that you owe. The lenders report the amounts on IRS Form 1099-C, which is taxable income unless you have an applicable exclusion
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A lender or bank has forgiven, discharged or written off a debt and has reported the amounts to the IRS>
The amount is considered taxable income. However, there might be some exclusions from taxable income.
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Yes, the amount reported on IRS Form 1099-C is taxable income, and must be reported on your tax return.
If there is an exclusion, both the amount of the 1099C & the exclusion must be reported on your Tax Return?
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It might be possible that the Lender does not have your updated address since you last had business with them. The lender might have mailed it o the last address they had on file, and still reported the amounts to the IRS on 1099-C. You can verify the all income sources by 3rd parties by reviewing your IRS Wage & Income Transcript.
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If you do not do anything, the IRS may add the amounts on your behalf, adding Taxes, Interest & Penalties. They make this change through an automated under-reporting and send you a CP2000 Notice.
It is highly recommended that you file an amended tax return with the reporting of the amounts on the 1099C & the applicable exclusions along with all the additional tax forms & schedule with the 1040X amended tax return.
Conclusion.
When it comes to tax advice, the best is to review source law & get sound advice from a qualified tax professional. Blindly following some tips you see on Tiktok, Youtube or any other social media should only be followed up by research from the law before applying any strategy.
