Form 1099-C (2012) Checklist: Cancellation of Debt Reporting
Purpose
Form 1099-C reports the discharge or cancellation of debt of $600 or more occurring in 2012. Debtors must report canceled amounts as income unless bankruptcy, insolvency, or other statutory exclusions apply. The 2012 instructions emphasize that identifiable events (Box 6 codes A through I) trigger reporting even before actual debt discharge occurs, requiring debtors to consult Publication 4681 to determine eligibility for exclusion in that specific tax year.
Creditor Completion Steps
Step 1: Verify Debt Discharge Amount and Identifiable Event
Confirm that the debt discharge amount listed in Box 2 for 2012 has occurred and is equal to or greater than the $600 threshold. Document the identifiable event date in Box 1 and assign the corresponding code (A through I) in Box 6, following the guidance in the 2012 Publication 4681. Note that for 2012, all identifiable event codes are optional except Code A (Bankruptcy), which must be reported when applicable.
Step 2: Complete Debtor Identification Information
Enter the debtor’s full name, street address, city, state, and ZIP code in the designated fields. Include the debtor’s taxpayer identification number (Social Security Number, Individual Taxpayer Identification Number, or Adoption Taxpayer Identification Number). Creditors may display only the last four digits of the identification number on Copy B furnished to the debtor for privacy protection.
Step 3: Report Account Number if Applicable
Enter the account number in the designated field if the creditor maintains multiple accounts for the same debtor. This unique identifier helps distinguish this debt from other accounts held by the debtor. While optional for single-account debtors, the IRS encourages creditors to designate an account number on all Forms 1099-C filed.
Step 4: Report Interest Included in Canceled Debt
Enter in Box 3 any interest amount included within the total debt discharged amount shown in Box 2. This separate reporting allows the debtor to evaluate taxability under 2012 rules, as interest treatment may differ from principal debt cancellation depending on whether the interest would have been deductible if paid.
Step 5: Describe the Debt and Property
Enter a clear description of the debt type and nature in Box 4. If property foreclosure or abandonment occurred in the same calendar year, 2012, include a description of the property and enter its fair market value in Box 7. Alternatively, indicate that a separate Form 1099-A will be furnished to report the foreclosure or abandonment details.
Step 6: Indicate Personal Liability Status
Check Box 5 if the debtor was personally liable for repayment when the debt was created or, if modified, at the time of the last modification before discharge in 2012. This indication affects the debtor’s income inclusion calculation, as outlined in Publication 4681, and determines whether the debt is recourse or nonrecourse for tax purposes.
Step 7: File Copy A with the IRS
Prepare Copy A for IRS filing, including the Form 1096 transmittal, by February 28, 2013. If filing electronically in accordance with Publication 1220 specifications, the due date is extended to April 1, 2013. Use only official IRS printed forms or approved electronic filing software, as scanned printouts from downloaded forms are not scannable and may result in penalties.
Step 8: Furnish Copy B to Debtor
Provide Copy B to the debtor by January 31, 2013, with instructions referencing Publication 4681. Include a notice stating that discharged debt must be reported as income on the debtor’s 2012 return unless specific exclusions apply, such as bankruptcy under Title 11, insolvency immediately before cancellation, or principal residence exemption under Publication 523.
Step 9: Include Creditor Contact Information
Ensure the creditor’s phone number appears in the creditor information box on Form 1099-C. This should be a central number where a person can be reached who will ensure the debtor is connected with the correct department to address questions or concerns about the canceled debt.
Step 10: Retain Records for Required Period
Keep a copy of Form 1099-C or maintain the ability to reconstruct the data for at least four years from the due date of the return. This recordkeeping requirement applies to all creditors required to file Form 1099-C and supports compliance with IRS audit and verification procedures.
2012 Specific Changes and Guidance
Identifiable Event Codes Now Trigger Reporting
Identifiable event codes (A through I) in Box 6 trigger Form 1099-C filing even when the debt has not been actually discharged, provided an identifiable event occurred in 2012. The debtor must report discharge income in the year actual discharge occurs unless an exclusion applies that year. For 2012, creditors may choose whether to enter codes B through I, but Code A (Bankruptcy) is mandatory when applicable.
Box Title Changes for 2012
The titles for boxes on Form 1099-C changed for 2012. Box 1 is now “Date of Identifiable Event,” Box 2 is now “Amount of Debt Discharged,” and Box 6 is now “Identifiable Event Code.” These title changes clarify reporting requirements and align with regulations distinguishing between identifiable events and actual debt discharge.
Foreclosure and Abandonment Reporting Requirements
Foreclosure and abandonment of property connected to debt cancellation in 2012 require fair market value reporting in Box 7 or the issuance of a separate Form 1099-A. If filing both Forms 1099-A and 1099-C for the same debtor, do not complete boxes 4, 5, or 7 on Form 1099-C. Principal residence foreclosures must reference Publication 523 gain and loss rules specific to the 2012 tax year.
IRS Online Resources for Future Developments
The IRS created dedicated Form 1099-C webpages on IRS.gov for future developments and legislation updates for 2012. Creditors must check these resources for any amendments enacted after the instructions release that affect 2012 reporting obligations. The dedicated page is www.irs.gov/form1099c and provides current information about changes affecting the form.
Debtor Notice Requirements
Copy B furnished to the debtor includes an explicit notice that negligence penalties or other sanctions may apply if canceled debt income is not reported on the 2012 Form 1040 “Other income” line. The debtor bears the burden of documenting exclusions using Publication 4681 and filing Form 982 when claiming exclusions from income resulting from canceled debt.
Who Must File
Creditors required to file Form 1099-C include financial institutions described in Internal Revenue Code sections 581 or 591(a), credit unions, federal agencies including the Federal Deposit Insurance Corporation and National Credit Union Administration, corporations that are subsidiaries of financial institutions subject to federal or state regulatory supervision, federal government agencies and instrumentalities, and organizations whose significant trade or business is lending money on a regular and continuing basis.
Multiple Creditors and Joint Debts
If more than one creditor owns a debt for federal income tax purposes, each creditor described under the filing requirements must issue Form 1099-C if that creditor’s portion of the canceled debt is $600 or more. For debts of $10,000 or more incurred after 1994 involving debtors jointly and severally liable, creditors must report the entire canceled debt amount on each debtor’s Form 1099-C unless clear and convincing evidence shows that joint and several liability does not exist.
Exceptions to Reporting
Creditors are not required to report certain bankruptcies unless the creditor knows from books and records that the debt was incurred for business or investment purposes. Interest reporting is optional, though if included in Box 2, it must be separately shown in Box 3. Nonprincipal amounts, including penalties, fines, fees, and administrative costs, are not required for lending transactions. No penalty applies for failure to report discharged debt held in pass-through securitized debt arrangements or by Real Estate Mortgage Investment Conduits.
Coordination with Form 1099-A
When canceling debt of $600 or more in connection with foreclosure or abandonment of secured property in the same calendar year, creditors may file Form 1099-C only and meet Form 1099-A requirements by completing boxes 4, 5, and 7 on Form 1099-C. However, creditors may file both forms if preferred; in this case, boxes 4, 5, and 7 should not be completed on Form 1099-C to avoid duplicate reporting.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
