Forms 1099-A and 1099-C Reporting Guide for 2010

Lenders must determine which event occurred and which form applies to the specific situation.

The 2010 instructions clarified when lenders must file each form separately and when combined filing satisfies both reporting requirements.

Complete Box 2 Reporting for Balance of Principal

Outstanding

Box 2 on Form 1099-A requires the balance of principal outstanding at the time the lender acquired the property interest. This amount represents the debt owed when the lender first knew or had reason to know that the borrower abandoned the property.

The 2010 instructions specified that this amount should include only the unpaid principal on the original debt. Lenders must exclude accrued interest and fees and foreclosure costs from this calculation to maintain accurate reporting standards.

Document Fair Market Value in Box 4 of Form 1099-A

Box 4 captures the fair market value of foreclosed property on the date of sale or abandonment.

The 2010 tax year guidance required filers to document the valuation method used to establish this figure.

Lenders should obtain a professional appraisal or use comparable property sales data from the same period and location. For foreclosure, execution, or similar sale, the gross foreclosure bid price generally represents the fair market value under IRS guidelines.

Report Debt Cancellation Information on Form 1099-C

Box 1 on Form 1099-C requires the date the debt was actually cancelled or forgiven.

Cancellation occurs when the debt obligation becomes unenforceable or the creditor releases the borrower from repayment.

Box 2 on Form 1099-C requires the amount of debt cancelled, and the 2010 instructions required filers to report the entire principal amount cancelled. Lenders must exclude accrued but unpaid interest and fees unless the creditor also forgave these amounts as part of the debt forgiveness agreement.

Apply Exemptions from Discharge-of-Indebtedness

Income

The 2010 tax year maintained existing exemption rules for discharge-of-indebtedness income under various provisions of the Internal Revenue Code. Qualified principal residence indebtedness cancellation remained excluded from income under IRC Section 108(a)(1)(E) for eligible homeowners.

Borrowers should determine whether the cancelled debt qualifies for any available exclusion before reporting income on their tax returns. Other exclusions may apply for bankruptcy discharges, insolvency, qualified farm debt, and qualified real property business debt.

Borrowers who exclude cancelled debt from their income must file Form 982 with their tax return. This form documents the exclusion and establishes required basis adjustments to property or other tax attributes.

Complete Box 6 and Box 7 Information for Form 1099-C

Box 6 on Form 1099-C functions as a checkbox indicating whether the creditor discharged the debt in bankruptcy proceedings. Box 7 reports the fair market value of property if a foreclosure or abandonment occurred in the same calendar year.

The 2010 instructions specified that for foreclosure, execution, or similar sale, the gross foreclosure bid price generally represents the fair market value. For abandonment or voluntary conveyance to the lender instead of foreclosure, lenders enter the appraised value in Box 7.

Meet Timely Filing and Furnishing Requirements

These forms carry specific deadlines for furnishing copies to borrowers or debtors and filing with

the IRS

• Lenders must furnish copies to borrowers or debtors by January 31 following the

calendar year of the transaction.

• Lenders must file forms with the IRS by February 28 for paper filing following the year of

foreclosure or debt cancellation.

• Electronic filing extends the IRS filing deadline to March 31 following the reporting year.
• Maintaining proof of timely mailing protects lenders from penalties for late filing or

furnishing.

Report Multiple Properties or Debts on Separate Forms

When a single lender forecloses on multiple properties or cancels multiple debts in 2010, separate forms are required for each transaction. The IRS prohibits aggregating balances or properties on a single form, and lenders must file one form per reportable event.

This separate reporting requirement applies regardless of whether multiple transactions involve the same borrower. Transaction-level accuracy requires distinct reporting for each property or debt throughout the calendar year.

Coordinate Form 1099-A with Form 1099-C When Both

Apply

When property foreclosure and debt cancellation both occur, lenders may need to issue both forms or use combined reporting. Form 1099-A reports the foreclosure sale transaction, while

Form 1099-C reports any deficiency cancellation that followed.

Lenders who cancel debt of $600 or more in connection with a foreclosure or abandonment in the same calendar year may file Form 1099-C only. Combined reporting satisfies the Form

1099-A filing requirement when the lender completes Box 4, Box 5, and Box 7 on Form 1099-C.

Verify Reporting Accuracy with Tax Transcripts

Borrowers can verify that lenders properly reported debt forgiveness transactions by requesting tax transcripts from the IRS. Tax transcripts show information returns filed under the borrower’s taxpayer identification number for specific tax years.

Reviewing tax transcripts helps borrowers confirm the accuracy of reported cancellation amounts before filing their tax returns. Discrepancies between lender-provided forms and IRS records should be resolved promptly to avoid processing delays or notices.

2010 Tax Year Guidance Updates

During the 2010 tax year, IRS instructions placed greater emphasis on documentation supporting fair market value reported on Form 1099-A. As a result of the financial crisis, professional appraisals and comparable sales data became standard support materials for foreclosure transactions.

For Form 1099-C, Box 6 served to indicate whether a creditor cancelled a debt through bankruptcy proceedings, while Box 7 captured the fair market value of property when foreclosure or abandonment occurred. Additional clarification addressed deficiency cancellation following foreclosure, confirming that lenders should issue both Form 1099-A and Form 1099-C in sequence when the circumstances require separate reporting.

In 2010, the principal residence indebtedness exclusion under IRC Section 108(a)(1)(E)

remained in effect. Eligible homeowners continued to exclude qualified cancellation of debt on primary residences from taxable income.

Responsibility for establishing eligibility for any exclusion rested with borrowers under the 2010 instructions. Regardless of anticipated exemptions under the Internal Revenue Code, lenders were required to report the full amount of cancelled debt when filing information returns.

If you’re missing tax documents or want to ensure the numbers you enter match IRS records, we can help.

• Full IRS transcript retrieval (Wage & Income + Account)
• Professional tax form review
• Preparation & filing support
• Tax relief options if you owe the IRS