1099s and Cancellation of Debt Income - Some Tips

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In an age of foreclosures, delinquent credit debt and other financial distress, clients express considerable concern about the tax consequences of having their debts written off by the lender. This is an important consideration for solvent taxpayers, who under IRC Sec. 108 will recognize, subject to the stated exceptions, income in the amount of the written off debt. There are important timing considerations, however, in addition to whether one of the exceptions apply. In other words, if and when a tax preparer reports COD income is not necessarily a function of when the taxpayer receives a 1099-C from the lender. There are ambiguities, also, as to who is entitled to issue a 1099-C and in what amount. This brief article provides practical guidance in advising clients on some of these issues.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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