1099-A and 1099-C Filing Rules

1/5/2012

By Mark Corey, CPA, JD

As the 1099 filing season fast approaches here is a summary of the 1099-A & 1099-C filing rules:

When to file a 1099-A

File a 1099-A for each borrower you lend money to in connection with your trade or business and in full or partial satisfaction of the debt:

• The bank acquires property securing the loan.
• The bank knows the property is abandoned.
• A third party acquires the property at a foreclosure or execution sale.
• An acquisition of the property by another lender which terminates, impairs or reduces the bank's security interest in the property.

When to file a 1099-C

File a 1099-C where $600 or more in debt secured by the property is discharged or deemed to be discharged based on one of the following eight identifiable events (also listed in Treasury Regulation § 1.6050P-1(b)(2))

• Discharge of debt in bankruptcy;
• Debt is rendered unenforceable in foreclosure, receivership or fed/state court proceeding;
• Expiration of the statute of limitations on collection, filing a claim, or filing a deficiency judgment proceeding;
• Bank's election of foreclosure remedies which by statute prohibit collection of deficiency;
• Debt is rendered unenforceable in a probate or similar proceeding;
• Agreement between Bank and borrower to discharge debt at less than full consideration (deed in lieu);
• Decision by the Bank or application of a defined policy of the Bank to discontinue collection activity and discharge the debt;
• Expiration of the "non-payment testing period" described in Regulation Section 1.6050P-1(b)(2)(iv), which creates a rebuttable presumption that debt has been cancelled where the bank has not received a payment on the debt at any time during the 36 months ending at the close of the calendar year.

When you do not need to file a 1099-C

• Bankruptcy of debtor- unless the debt was incurred for business or investment purposes.
• Interest- you can optionally show separately in box 3.
• Non-principal amounts.
• Foreign debtors.
• Related parties
• Release of a debtor- as long as the remaining debtors are liable for the full unpaid amount
• Guarantor or surety (Guarantor is not a debtor for purposes of filing Form 1099-C even if demand for payment is made)
• Seller financing

To view a full presentation on the rules for 1099-A & 1099-C filings please click here.