How to Fill Out the Statement for Form 1099-C

A statement to the debtor is required if you cancel a debt.

If someone owes you money and is not paying it back, you may be able to claim it as a loss on your taxes. One of the forms utilized for this purpose is the 1099-C. If you take the money as a loss, it is considered income on the debtor's taxes. Therefore, you need to provide a statement to the debtor on the appropriate form(s). The statement you send to the debtor alerts the debtor that he may have taxable income on a discharged debt that he needs to report to the IRS.

Instructions

1. Obtain a copy of Form 1099-C by calling 1-800-829-3676, or by ordering it online. Do not use a form you have printed from an online source.

2. Fill out the left side of the form by entering your name, address, telephone number and federal identification number in the appropriate boxes. Place the debtor's identification number, name and address in the boxes provided. Include an account number if the debtor has more than one account with you.

3. Enter the date the debt was cancelled in Box 1; the amount of the debt that was cancelled in Box 2; and the amount of interest you included in the cancelled debt in Box 3.

4. Complete Boxes 4, 5, 6, and 7, keeping in mind that Boxes 4, 5, and 7 are considered your statement to the debtor. Place a description of the debt in Box 4. Include a description of the origin of the debt, such as whether it was a mortgage, a student loan, a credit card debt or a medical bill. Be specific. Place an "X" in the appropriate box in number 5 to indicate whether the borrower was personally liable for the debt at any time since its creation. If the property you are referencing is a foreclosure, execution or similar sale, you need to enter the fair market value of the property in Box 7. If it is an abandonment or voluntary conveyance in lieu of foreclosure, enter the appraised value of the property

5. File Copy A with the Internal Revenue Service by February 28, by mail, or by March 31, if filed electronically, of the year following the debt cancellation. Mail Copy B, with the instructions attached, to the debtor by January 31, keeping in mind that this is your statement to the debtor. Retain Copy C for your records.

Tips & Warnings

• The IRS allows you to send a substitute statement to the debtor. However, it must be in essentially the same format as the 1099-C and contain all of the information you are required to include on the 1099-C.

• The statement to the debtor (1099-C) must be clear and specific. That allows the debtor to contest the debt if the debtor believes he is not responsible for the debt or that the form has been filed in error.

• Tax forms often change from year to year. Instructions for new forms will also change. When filing tax forms, review the IRS instructions for each form any time the form or tax year changes.

• The Form 1099-C can be viewed online. However, if you print it out and file it instead of obtaining your form by mail, you can be fined up to $50 per form. The 1099-C has bar codes that allow the form to be scanned. The online version cannot be scanned.

References

• Internal Revenue Service; 2010 General Instructions for Certain Information Returns; Statement to Recipients
• Internal Revenue Service: ATTENTION
• CreditCard.com; Beware of IRS tax bite that may follow cancelled debt; Connie Prater
• Internal Revenue Service; Statements to Borrowers
• Internal Revenue Service; Instructions for Forms 1099-A and 1099-C