Home > Personal Finance > Slew Of Tax Tips To Clean Your 1099-C Mess

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If you’re facing tax headaches because you received a 1099-C for cancellation of debt income, you are not alone. An estimated 6.3 million of those forms have gone out to taxpayers and they are creating all sorts of confusion. It’s a big mess, and the IRS isn’t exactly handing taxpayers a broom. If you’re among the millions struggling with these forms, take a look at the resources we’ve put together for you here.

For a quick overview, start with our article, What Is A 1099-C? and our Infographic: What To Do If You Receive A 1099-C.

If you received a 1099-C, then read this in depth article: 1099-C In The Mail? How to Avoid Taxes on Cancelled Debt which will explain how you may be able to avoid paying taxes on this “income.”

If you received a 1099-A, most likely due to a foreclosure, then you’ll want to read 1099-A In The Mail? How to Avoid Taxes on Cancelled Debt. A related article, More Confusion Over the 1099-C talks about whether Home Affordable Foreclosure Alternatives payments are taxable, and what happens when private mortgage insurance (PMI) is involved in cancelled debt.

If you filed for bankruptcy or had a student loan forgiven, then hopefully this article, Just Received a 1099-C? Don’t Freak Out! will give you the additional information you are looking for.

If, like many of our readers, you have received a 1099-C for a very old debt, then my article 1099-C: The Worst Tax Mess of the Year? is for you.

I would be remiss if I didn’t warn you that the mess these lenders are creating can also increase your chances of being audited. I explain why in 1099-C Wrong? Taxpayer May Pay With An Audit.

And finally, if you believe a 1099-C form you received is wrong, or too old, you’ll want to make sure you read Tax Help: How to Dispute a 1099-C as well as my more recent article, What to Do If You Get a 1099-C for an Old Debt.

Thanks so much to our readers who have shared their questions, comments and frustrations. I wish we had all the answers, but we don’t. It’s clearly something the IRS needs to fix, and fast. If you’re facing financial problems or hardships due to a 1099-C, or if you can’t get straight answers to your questions, I’d encourage you to contact your elected officials in Washington and let them know what’s going on.

And take heart: maybe it won’t be as bad as you think. One of our readers who first wrote in “freaking out” when she got one of these forms now writes:

Just want you to know I made out okay with my taxes regarding the 1099C…….not as bad as I thought it was going to be……so I will pay off what I owe the IRS………at least I will be able to eat in the following months……….I have certainly learned a lesson in this experience. Never want to have this happen again.

Hopefully you’ll find a way to put this behind you as well, without resorting to an all Ramen Noodle and peanut butter diet.

Image: Linzi Clark, via Flickr

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  • Zig

    Q: What about the situation with the tax law changing at the end of 2012? It has to do with forgiven debt on short-sales, the law ends this year.

  • Zig

    Let me clarify: many people who sell their houses short or do a deed-in-lieu of foreclosure AFTER 2012 will face a similar situation to the girl who owes on canceled student debt. The tax law is only good from 2007-2012, it will end soon.

    • Gerri Detweiler

      Yep. You’re right. If Congress doesn’t act and extend that exclusion it’s going to mean a big tax headache for many people.

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  • Bob

    I received a IRS notice for a 1099-c but I never had any cancellation if debt or bankruptcy… What do I do?

    • Gerri Detweiler

      Bob – Perhaps it is a mistake. Find out from the IRS the name of the company reporting the 1099-C and contact them. if they have the wrong person then you need to insist they file a corrected 1099-C showing $0 for the cancelled debt.

  • http://www.Credit.com/ Gerri Detweiler

    That’s ridiculous. There is no reason for the lender to file a 1099-C almost 10 years later. Unfortunately the IRS doesn’t make it easy to dispute these things, but you should. (There is no specific form for handling this.) I’ve written a couple of pieces about this issue that may help. Also, please be sure to file a complaint about the lender or collector who filed the 1099-C with the Consumer Financial Protection Bureau!

    1099-C: The Worst Tax Mess of the Year?

    Tax Help: How to Dispute A 1099-C Form

    • Bill Manning

      On a side note, I just got off the phone with the bank and they stated that the only reason a 1099-C was filed in 2012 is because the IRS requested that they (the bank) purge all old accounts. I wonder how many others are receiving notices from the IRS concerning 20 year old debts because of something like this?

  • http://www.Credit.com/ Gerri Detweiler

    If it wasn’t her primary residence then she won’t qualify for the Mortgage Forgiveness Debt Relief Act exclusion so that may only leave insolvency but she should look over the full list of exclusions here: 1099-C In the Mail? How to Avoid Taxes on Cancelled Debt

    Also these forms get tricky when a non-primary residence and co-borrower is involved. Since it’s no doubt a large amount she’ll want to make sure she’s doing it right.

    Instructions and the worksheet are in IRS Publication 4681. Other resources she may find helpful include the ZipDebt Insolvency Calculator and Dan Pilla’s book, How to Eliminate Taxes on Debt Forgiveness .

  • http://www.Credit.com/ Gerri Detweiler

    Since you are not on title I see no reason to include it but I am not a tax professional so please don’t take this as tax advice.

  • vernon

    what if you are paying a debt relief company to settle your debts and are also paying them a fee to do this, should I still be getting a form 1099c as the debt is a resolved debt not a debt cancellation.

    • http://www.Credit.com/ Gerri Detweiler

      The IRS requires creditors and collection agencies who forgive debt of $600 or more to file a 1099-C. The fact that you hired a company to help you do that does not change that. It may be resolved the the original creditor still accepted less than full payment for the debt.

  • Cam

    What can you do if your student loan was forgiven because of total disability and you unable to work? How can you pay off a tax debt if you are unable to work???

  • CJ

    Today I received a CP2000 notice dated March 28th 2016 from the IRS, stating changes to my 2014 tax return, proposed amount due of $2046 for cancellation of debt, received from Credit Acceptance dated 12/24/2014. I researched Credit Acceptance online to find that they are an auto lender, so I called them, because I haven’t had an auto loan for 4-5 years. After speaking with a representative, I recalled that it was for a car that I purchased in April, 1997 that I only made one payment on before abandoning it because it broke down 2 months after I purchased it, needed $2000+ in repairs that I couldn’t afford when I was 20 yrs old and broke. While speaking with the representive I told her I had received this 1099, and wanted to know what it was for, and she told me what I had recalled, the car make and etc. I played like I knew nothing about it and I said i wanted proof of this contract from April 1997… I could hear her typing on computer for a minute or so then she said she couldn’t find it, most likely…because it was so far past the SOL and then, put me on hold for several minutes, then got back on and said she had to make a request to another dept. and will call me back within 3 days with it.

    Granted I’ve moved around the country 7-8 times over the last 19 years since I abandoned this car, I never received any calls or mail from them attempting to collect on the debt, and certainly never received a 1099 from them in 2014, in fact the rep. said the last known address they have for me was my parents house from 19 years ago, which they haven’t lived there for 12+yrs.

    I’m not sure what to do about this, and am looking for guidance. Can they really do this 12 years after the 7 year SOL has passed? The IRS says I owe $2046 by April 28th which is a month from now.

    • http://www.credit.com/ Credit.com Credit Experts

      A tax professional who specializes in 1099-Cs would be your best place to seek advice.

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