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#1771254 - 12/31/12 03:19 PM Forgiving Debt (1099-C)
Auditor412 Offline
Member
Joined: Jun 2011
Posts: 51
Midwest, United States
Our bank has very few charge off loans within a year (approx. 10) - is it required and when do we determine it is necessary to issue a 1099-C? We currently do not have any procedures addressing this and it is my understanding that upper mgmt would prefer not to send them out in order to save any future customer relations where pymyt may be obtained...any assistance is greatly appreciated!!

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#1771264 - 12/31/12 03:42 PM Re: Forgiving Debt (1099-C) Auditor412
John Burnett Offline
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John Burnett
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Cape Cod
When certain events occur that result in the cancellation of a debt, IRS rules require that either a 1099-A or 1099-C be filed. The explanation of the events that trigger a filing is long and complex, so I do recommend that you pull down and review the instructions available on the IRS' website. Consult with a qualified tax adviser if the instructions are not clear.

This isn't a matter of discretion that management can decide.
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#1771278 - 12/31/12 04:08 PM Re: Forgiving Debt (1099-C) Auditor412
Kathleen O. Blanchard Offline

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Kathleen O. Blanchard
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Posts: 21,281
Originally Posted By: I_heart_audit
Our bank has very few charge off loans within a year (approx. 10) - is it required and when do we determine it is necessary to issue a 1099-C? We currently do not have any procedures addressing this and it is my understanding that upper mgmt would prefer not to send them out in order to save any future customer relations where pymyt may be obtained...any assistance is greatly appreciated!!

The bank does need to become familiar with the IRS rules. There are specific actions that constitute ongoing collection activity that must be taken to avoid having to file a 1099-C.
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#1771299 - 12/31/12 04:32 PM Re: Forgiving Debt (1099-C) Auditor412
Auditor412 Offline
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Joined: Jun 2011
Posts: 51
Midwest, United States
Thank you!

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#1773965 - 01/08/13 10:53 PM Re: Forgiving Debt (1099-C) Auditor412
Auditor412 Offline
Member
Joined: Jun 2011
Posts: 51
Midwest, United States
After readings my IRS rules, I'm somewhat confused. Does charging off a loan and sending it to a third party collection company deem the debt to be canceled? i.e. Bank charges off a loan (or demand deposit account) and sends the information to a third-party collection company, should a 1099-C be issued?

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#1773969 - 01/08/13 10:59 PM Re: Forgiving Debt (1099-C) Auditor412
rlcarey Offline
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rlcarey
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Posts: 79,923
Galveston, TX
You don't send until collection activity ceases for the required period of time. I assume you are not selling the charged-off accounts to them and that the collection company is only collecting for you.
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#1774050 - 01/09/13 02:11 PM Re: Forgiving Debt (1099-C) Auditor412
Auditor412 Offline
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Joined: Jun 2011
Posts: 51
Midwest, United States
Correct, the collection company is only collecting for the bank. Just to clarify, when you say we don't send a 1099-C until the "collection activity ceases for the required period of time", does that mean the bank has chosen not to use the collection company for the customer anymore or that the collection company was not able to collect any funds? What is the required period of time? (36 months?) Thank you for helping me understand!! I truly appreciate it!

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#1774055 - 01/09/13 02:14 PM Re: Forgiving Debt (1099-C) Auditor412
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 79,923
Galveston, TX
Here are the instructions:

http://www.irs.gov/instructions/i1099ac/ar02.html#d0e420

Read the section entitled: "When a debt is cancelled" Uusually it would be #8 that comes into play, unless you have a policy that falls under #7
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#1774102 - 01/09/13 03:01 PM Re: Forgiving Debt (1099-C) Auditor412
Auditor412 Offline
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Joined: Jun 2011
Posts: 51
Midwest, United States
Thank rlcarey! I have read the irs instructions and my understanding is that if the non-payment testing period has expired (36 months) a 1099-C should be sent unless a third party has been engaged in collection activity. If my interpretation is correct, how long can it be with the collection company? At what point is the bank required to send the 1099-C if the collection company is unable to collect?

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#1774114 - 01/09/13 03:15 PM Re: Forgiving Debt (1099-C) Auditor412
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 79,923
Galveston, TX
I believe it would come down to State law regarding when the debt would no longer be enforcable.

However, if you haven't gotten a payment in three years, the chances of collection will probably be pretty slim and I doubt the collection agency would still be meeting the "significant bona fide collection activity" threshold on loans that old.
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#1774120 - 01/09/13 03:23 PM Re: Forgiving Debt (1099-C) Auditor412
Auditor412 Offline
Member
Joined: Jun 2011
Posts: 51
Midwest, United States
Thank you!

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#1778978 - 01/23/13 04:29 PM Re: Forgiving Debt (1099-C) Auditor412
deh Offline
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Joined: Mar 2006
Posts: 866
Just wanted to see what everyone else is doing for Box 7 on this form. For Short Sales are you putting the Gross Sales Price or listing the full total indebtedness?

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#1779521 - 01/24/13 05:41 PM Re: Forgiving Debt (1099-C) Auditor412
deh Offline
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Joined: Mar 2006
Posts: 866
Any comment?

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#1779554 - 01/24/13 06:51 PM Re: Forgiving Debt (1099-C) Auditor412
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 79,923
Galveston, TX
According to the instructions, you would treat a short sale just like a foreclosure sale, as it is similar.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#1781170 - 01/30/13 04:23 PM Re: Forgiving Debt (1099-C) Auditor412
deh Offline
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Joined: Mar 2006
Posts: 866
Another 1099-C question. Do you cancel debt on DIL's? We had a bit of a debate as to whether the DIL agreement precluded your ability to file a 1099-C at all.

Our State Legislation basically provides that we cannot pursue any deficiency judgement. However, I thought this also meant we would not file a 1099-C at all based on that. I am being told that we can file a 1099-C for the amount of our debt less the FMV.
Last edited by deh; 01/30/13 04:28 PM.
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#1781443 - 01/30/13 11:53 PM Re: Forgiving Debt (1099-C) Auditor412
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 79,923
Galveston, TX
What's a DIL??? Regardless, the ability to collect at a State level does not impact IRS reporting requirements.

Oh, never mind - deed in lieu, - another situation similar to foreclosure.
Last edited by rlcarey; 01/30/13 11:55 PM. Reason: figured it out
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