Summary of 1099A and 1099C Requirements

12/3/2009

By Joseph M. Press, CPA, CFE

The time for filing the various types of 1099s is rapidly approaching. Given the increase in loans going bad, we wanted to single out and review the requirements for filing 1099As and 1099Cs which relate to abandonments of collateral and forgiveness of debt. We hope the outline format will make it easy to determine if your bank will be required to prepare 1099s and/or 1099Cs for any of your loan customers.

1099A – The ‘A’ is for abandonment. These are generally given only when the abandonment or the acquisition of collateral occurs, but no identifiable event resulting in debt forgiveness has yet occurred during the calendar year (see below for the definition of an identifiable event).

Given in the year when you first learn property that was given as security on a loan has been abandoned or you acquire an interest in the property in full or partial satisfaction of the debt.
Property is a) any real property, b) any intangible property and/or c) tangible personal property (unless held only for personal use e.g. a car).
If the abandonment and debt forgiveness occur in the same calendar year, only a 1099C need be given.

1099C – The ‘C’ is for cancellation. These are only given when the debt is $600 or more.

• Cancellation of a debt occurs when an ‘identifiable event’ has occurred. Identifiable events include:
  • A discharge in bankruptcy under Title 11 (note that this is not Chapter 11 – Title 11 includes Chapter 7, 11, etc.).
    • Exception – Not required to give a 1099C unless you know from information in your books and records that the debt was incurred for business or investment purposes.
    • If exception is not met, send the 1099C in the later of a) the year in which the amount of discharged debt first can be determined, or b) the year in which the debt is discharged in bankruptcy.
  • A cancellation resulting in the debt becoming unenforceable in a receivership, foreclosure or similar federal or state court proceeding.
  • A cancellation when the statute of limitations for collecting the debt expires or when the statutory period for filing a claim or beginning a deficiency judgment proceeding expires. Expiration of the statute of limitations is an identifiable event only when a debtor’s affirmative statute of limitations defense is upheld in a final judgment or decision of a court and the appeal period has expired.
  • A cancellation when the creditor elects foreclosure remedies that by law end or bar the creditor’s right to collect the debt.
  • A cancellation due to a probate or similar proceeding.
  • A discharge under an agreement between the creditor and debtor to cancel the debt at less than full consideration.
  • A discharge because of a decision or a defined policy of the creditor (written or an established business practice) to discontinue collection activity and cancel the debt.
  • The expiration of a non-payment testing period which occurs when the creditor has not received a payment on the debt during the 36-month period ending on December 31 of the current year plus any time collection activity was precluded by a stay in bankruptcy or similar bar under state or local law.
• The debtor can be an individual, corporation, partnership, trust, estate, association or company.
• You are not required to report interest, but can, and if you do so, you will include the interest as part of the forgiveness but also report the interest separately in box 3.
• You are not required to report non-principal amounts including penalties, fines, fees and administrative costs.
• You are not required to give a 1099C to a guarantor or surety on a loan even though demand for payment is made of the guarantor.
• Do not file a 1099C for fraudulent debt cancelled due to identity theft.
• The 2009 Form 1099C has been revised to require a central phone number that the debtor can call to contact someone who is familiar with the debt forgiveness. In addition, a new box 5 has been added to indicate whether the borrower was personally liable for repayment of the debt.

Penalties

The penalties for failure to file 1099A or 1099C are as follows:

• $15 per 1099 not filed if it is filed within 30 days of due date (by March 30 if due date is February 28);
• $30 per 1099 not filed if it is filed more than 30 days after the due date but by August 1;
• $50 per 1099 not filed if it is filed after August 1, or never filed.