Form 1099-C (2014): Debt Cancellation Reporting Guide Checklist

Form 1099-C (2014) Cancellation of Debt

Purpose and Reporting Overview

Form 1099-C reports cancellation of debt of $600 or more occurring in calendar year 2014. Creditors must identify the earliest identifiable event date and report whether personal liability existed when the debt was created or last modified.

Debtors must include discharged amounts in gross income on Form 1040 line 21 unless an exception applies under Publication 4681. The form requires creditors to determine both the identifiable event triggering the reporting requirement and the debtor's personal liability status at the time of debt origination or the date of last modification.

Filing Requirements and Deadlines

Creditors must furnish Copy B to each debtor by February 2, 2015, or the next business day when February 2 falls on a weekend or holiday. Copy A must reach the Internal Revenue Service by March 2, 2015, for paper filing or March 31, 2015, for electronic filing through approved software.

Electronic filing requires software that generates files according to Publication 1220 specifications and meets Internal Revenue Service technical standards. The 2014 General Instructions for Certain Information Returns and the 2014 Instructions for Forms 1099-A and 1099-C govern all reporting procedures and box definitions for the tax year.

Mandatory Reporting Steps

Step 1: Verify Event Date and Threshold

• Confirm that debt discharge occurred in calendar year 2014.
• Ensure the total canceled debt equals or exceeds $600.
• Enter the earliest identifiable event date in Box 1 if an identifiable event occurred before actual discharge.

Step 2: Obtain Debtor Identification

• Enter the debtor's correct identification number (SSN, ITIN, or ATIN).
• Only the last four digits should appear on Copy B furnished to the debtor.
• The full number must appear on the IRS-submitted return.

Step 3: Report Discharged Amount

• Complete Box 2 with the total amount of debt discharged or deemed discharged in 2014.
• Reconcile the amount against creditor records.
• Communicate discrepancies to the debtor before the filing deadline.

Step 4: Report Interest Component

• Enter the interest included in the Box 2 amount in Box 3 if interest was part of the canceled debt.
• Reference Publication 4681 to determine if interest should be included separately in taxable income.

Step 5: Select Identifiable Event Code

Choose the appropriate code in Box 6 based on the discharge reason:

1. Code A – Bankruptcy under Title 11
2. Code B – Other judicial relief (receivership or foreclosure)
3. Code C – Statute of limitations expiration
4. Code D – Foreclosure election terminating collection rights
5. Code E – Probate or similar court relief
6. Code F – Agreement between creditor and debtor
7. Code G – Decision or policy to discontinue collection
8. Code H – Nonpayment testing period expiration
9. Code I – Other actual discharge before identifiable event

Step 6: Report Property Fair Market Value

• Enter FMV in Box 7 if foreclosure or property abandonment occurred in 2014 with debt cancellation.
• Issue a separate Form 1099-A if preferred.
• Use appraised value as FMV for abandonments or voluntary conveyances.

Step 7: Indicate Personal Liability Status

• Check Box 5 if the debtor was personally liable for repayment when the debt was created.
• For modified debts, check if personal liability existed at the time of last modification.
• This affects whether the debtor must include the discharge in income.

Step 8: Distribute and File Forms

• Furnish Copy B to the debtor by February 2, 2015.
• File Copy A with the IRS by March 2, 2015 (paper) or March 31, 2015 (electronic) using Publication 1220 specifications.

Form Restrictions and Technical Requirements

Forms printed from the Internal Revenue Service website cannot be filed with the agency for Copy A submissions. Paper forms are scanned during processing and require unmodified Internal Revenue Service-printed or vendor-generated forms meeting 2014 specifications.

Creditors must use forms conforming to technical standards outlined in the applicable year's publications to ensure proper scanning and processing. Downloaded forms lack the required red-ink specifications and scannable format necessary for Internal Revenue Service data capture systems.

Debtor Tax Treatment and Exclusions

Publication 4681, titled Foreclosures, Abandonments, Debt Forgiveness, and Insolvency, serves as the exclusive reference for determining debtor exclusions and exceptions from canceled debt income. Debtors claiming insolvency or bankruptcy must consult this publication to limit income recognition in 2014 and calculate applicable exclusions.

The publication includes worksheets and examples for calculating exclusion amounts in cases such as Title 11 bankruptcy or insolvency existing before cancellation. Debtors must complete the insolvency worksheet to determine the extent to which canceled debt can be excluded from gross income based on their financial condition immediately before discharge.

Income Reporting Requirements for Debtors

Debtors receiving Form 1099-C must report discharged debt on the "Other income" line of Form 1040 for tax year 2014 unless an exception applies under applicable Internal Revenue Code provisions. Failure to report canceled debt may lead to negligence penalties and understatement penalties assessed by the Internal Revenue Service.

The 2014 Copy B warning alerts debtors to these potential penalties and directs them to consult Publication 4681 for determining available exclusions. Debtors must evaluate their eligibility for exceptions such as bankruptcy, insolvency, qualified principal residence indebtedness, or qualified farm indebtedness before excluding canceled debt from gross income.

Key Compliance Points

• Creditors must reference both the 2014 General Instructions for Certain Information Returns and the 2014 Instructions for Forms 1099-A and 1099-C.
• These documents define boxes, event codes, and filing procedures.
• The creditor’s phone number must appear in the information box and connect to the correct department.
• Multiple forms filed for the same debtor must include distinct account numbers to differentiate cancellations.

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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.