What IRS Form 1099-C (2017) Is For
IRS Form 1099-C for (2017) reports canceled debt income that lenders provide to the Internal Revenue Service after they forgive outstanding debt. The form identifies the canceled debt amount, the original creditor, and the potential tax consequences for the taxpayer’s gross income. The taxpayer uses the information to determine how the cancellation of debt may affect the individual income tax return.
Financial institutions, credit card companies, and federal government agencies issue the form when they discharge debts, settle accounts, or complete a loan modification. The form records information about credit card debt, real property debt, or liabilities the lender forgives for tax purposes. The information helps taxpayers evaluate excluded canceled debt, determine fair market value, and review tax attributes related to principal residence indebtedness.
When You’d Use IRS Form 1099-C (2017)
Taxpayers use Form 1099-C when a lender forgives money, cancels outstanding debt, or settles consumer debts involving personal loans, credit card debt, or real property loans. The lender reports the canceled debt amount, and the taxpayer includes the information on the individual income tax return for the correct tax year. The taxpayer evaluates whether the discharged debt creates taxable income or qualifies for excluded canceled debt.
Taxpayers rely on Form 1099-C when debt cancellation results from bankruptcy, insolvency, or qualified farm indebtedness. The form helps determine whether total liabilities exceed total assets immediately before the lender forgives the obligation amount. The information also assists taxpayers in reviewing foreign tax credits, minimum tax credits, and overall tax treatment considerations.
Key Rules or Details for 2017
The creditor issues Form 1099-C when an identifiable event occurs, such as bankruptcy, a foreclosure involving real property, or a lender's decision to stop collection efforts. These rules apply when total debts exceed total assets, when qualified farm debt appears, or when the creditor determines the taxpayer is personally liable for the outstanding debt. The taxpayer evaluates fair market value, ordinary income, and gross income to identify the correct tax treatment.
The taxpayer reviews codes, tax credits, and exclusion criteria before preparing the individual income tax return. The 2017 rules require review of assets held immediately before cancellation and the total adjusted basis tied to discharged debt. These guidelines support decisions involving debt cancellation, debt settlement, and qualified principal residence indebtedness.
Step-by-Step (High Level)
Step 1: The taxpayer reviews Form 1099-C to verify the canceled debt amount, the original creditor, and any listed fair market value information connected to the transaction.
Step 2: The taxpayer identifies whether exceptions for gifts, qualified farm indebtedness, or qualified principal residence indebtedness apply to the canceled amount.
Step 3: The taxpayer evaluates the insolvency exclusion by comparing total liabilities with total assets before the lender cancels the obligation.
Step 4: The taxpayer completes Form 982 to record excluded canceled debt and apply any required tax attribute reductions.
Step 5: The taxpayer reports any remaining canceled debt on the individual income tax return when no exclusion applies.
Step 6: A taxpayer consults a tax professional for guidance on discharged debt and related tax considerations.
Common Mistakes and How to Avoid Them
Taxpayers often face delays when Form 1099-C information does not match Internal Revenue Service records. These delays usually stem from filing mistakes. Addressing these issues supports accurate reporting and compliance.
- Incorrect Canceled Debt Entry: This mistake occurs when the canceled debt amount entered on the return differs from the figure reported on Form 1099-C, and the taxpayer must verify every amount before filing.
- Mismatched Taxpayer Identification: This mistake appears when the name or TIN does not match IRS records, and the taxpayer must confirm all identifying information.
- Missing Form 982: This mistake arises when a taxpayer excludes canceled debt without attaching Form 982, and the taxpayer must submit the completed form.
- Incomplete Asset and Liability Records: This mistake occurs when a taxpayer fails to maintain records for assets, liabilities, and fair market value calculations, and the taxpayer must retain documentation for verification.
What Happens After You File
The Internal Revenue Service processes the individual income tax return and reviews the information reported on Form 1099-C, Form 982, and supporting schedules. The agency compares the canceled debt information with records submitted by creditors, federal government agency filers, and debt collectors. The review confirms whether the taxpayer accurately reported money owed, outstanding debt amounts, and potential tax consequences associated with canceled debt.
The Internal Revenue Service sends correspondence when reported information does not match, which requires additional documentation involving total liabilities, real property values, or exclusion criteria that apply. The taxpayer may need to explain the insolvency exclusion, qualified farm debt rules, or total assets calculations to resolve questions. The taxpayer can consult a tax professional for support with canceled debt matters, and this process prepares the taxpayer for the FAQs.
For guidance on exclusions, adjustments, and filing requirements, visit our IRS Form Help Center.
FAQs
How does fair market value affect the reporting of canceled debt?
Fair market value affects the calculation when debt is forgiven because the Internal Revenue Service reviews property values to determine the correct income amount. The taxpayer compares the fair market value with the outstanding balance to identify whether any portion of the debts discharged creates taxable income. The taxpayer uses the valuation guidance in an IRS publication to ensure consistent reporting.
How does fair market reporting work during debt cancellation?
Fair market reporting requires the taxpayer to confirm the value of property held when a lender cancels or settles an obligation. The taxpayer evaluates records that document ownership, fair market conditions, and any adjustments made when the debt was forgiven. These records support general rules involving assets, liabilities, and several exceptions that apply to canceled debt.
How does the cancellation of debt affect a taxpayer who filed separately?
Cancellation of debt affects a taxpayer who filed under the married filing separately rules when the debts discharged relate to shared accounts or joint borrowing. The taxpayer identifies who benefited from the loan proceeds and who must report the income when forgiven debt totals exceed individual thresholds. Accurate allocation supports compliance with general rules for canceled debt reporting.
How does debt settlement influence taxable income?
Debt settlement influences taxable income when a creditor accepts less than the amount owed, and the remaining balance becomes debt forgiven. The taxpayer includes the forgiven amount unless several exceptions apply, such as insolvency or bankruptcy circumstances documented through supporting records. The taxpayer must review IRS publication guidance to determine whether exclusions apply for the tax year.
How should a taxpayer respond when contacted by a debt collector after a cancellation event?
A taxpayer should verify whether the discharged debts were accurately recorded before responding to a debt collector after a cancellation event. The taxpayer must confirm whether the lender issued Form 1099-C and whether any remaining balance legally remains collectible. The taxpayer may need professional guidance to evaluate general rules, pay requirements, and documentation that supports the cancellation.
For more federal form guidance, visit the Federal Fillable Tax Forms section.
