reading through the IRS instructions, under Penalties / Exceptions, it reads "Until further guidance, no penalty will apply for failure to file 1099-C for amounts forgiven pursuant to the terms of a debt obligation" I read this that banks will not be penalized for not filing the 1099-C. Is that how you read it?

Not sure which year's instructions you are referring to. I assume it would apply to loans such in which a portion of the loan is forgiven over the term of the obligation (first-time homebuyers programs, etc.).

Until further guidance is issued, no penalty will apply for failure to file Form 1099-C, or provide statements to debtors, for amounts:

o Discharged in nonlending transactions, or
o Forgiven pursuant to the terms of a debt obligation.