Form 1099-C--Cancellation of Debt

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Instructions for Forms 1099-A and 1099-C (2010) 13:10 - 20-JAN-2010

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

2010

Department of the Treasury
Internal Revenue Service

Instructions for Forms
1099-A and 1099-C
Section references are to the Internal Revenue Code unless
otherwise noted.

is an exempt foreign person (unless the lender knows that the
statement is false).

Who Must File

What’s New

In addition to the general rule specified above, the following
rules apply.

Truncating borrower/debtor identification number on paper
payee statements. Notice 2009-93 allows filers of Forms 1099-A
and 1099-C to truncate a borrower’s (Form 1099-A) or debtor’s
(Form 1099-C) identification number (social security number (SSN),
individual taxpayer identification number (ITIN), or adoption
taxpayer identification number (ATIN)) on paper payee statements
for tax years 2009 and 2010. See part M in the 2010 General
Instructions for Certain Information Returns (Forms 1098, 1099,
3921, 3922, 5498, and W-2G).

Reminder
In addition to these specific instructions, you should also use the
2010 General Instructions for Certain Information Returns. Those
general instructions include information about the following topics.
• Backup withholding.
• Electronic reporting requirements.
• Penalties.
• Who must file (nominee/middleman).
• When and where to file.
• Taxpayer identification numbers.
• Statements to recipients.
• Corrected and void returns.
• Other general topics.
You can get the general instructions from the IRS website at
www.irs.gov or by calling 1-800-TAX-FORM (1-800-829-3676).

Multiple owners of a single loan. If there are multiple owners of
undivided interests in a single loan, such as in pools, fixed
investment trusts, or other similar arrangements, the trustee, record
owner, or person acting in a similar capacity must file Form 1099-A
on behalf of all the owners of beneficial interests or participations.
In this case, only one form for each borrower must be filed on
behalf of all owners with respect to the loan. Similarly, for bond
issues, only the trustee or similar person is required to report.
Governmental unit. A governmental unit, or any of its subsidiary
agencies, that lends money secured by property must file Form
1099-A.
Subsequent holder. A subsequent holder of a loan is treated as a
lender and is required to report events occurring after the loan is
transferred to the new holder.
Multiple lenders. If more than one person lends money secured
by property and one lender forecloses or otherwise acquires an
interest in the property and the sale or other acquisition terminates,
reduces, or otherwise impairs the other lenders’ security interests in
the property, the other lenders must file Form 1099-A for each of
their loans. For example, if a first trust holder forecloses on a
building, and the second trust holder knows or has reason to know
of such foreclosure, the second trust holder must file Form 1099-A
for the second trust even though no part of the second trust was
satisfied by the proceeds of the foreclosure sale.

Abandonment

Specific Instructions for Form 1099-A
File Form 1099-A, Acquisition or Abandonment of Secured
Property, for each borrower if you lend money in connection with
your trade or business and, in full or partial satisfaction of the debt,
you acquire an interest in property that is security for the debt, or
you have reason to know that the property has been abandoned.
You need not be in the business of lending money to be subject to
this reporting requirement.

Coordination With Form 1099-C
If, in the same calendar year, you cancel a debt in connection with
a foreclosure or abandonment of secured property, it is not
necessary to file both Form 1099-A and Form 1099-C, Cancellation
of Debt, for the same debtor. You may file Form 1099-C only. You
will meet your Form 1099-A filing requirement for the debtor by
completing boxes 4, 5, and 7 on Form 1099-C. However, if you file
both Forms 1099-A and 1099-C, do not complete boxes 4, 5, and 7
on Form 1099-C. See the instructions for Form 1099-C on page 2.

Property
Property means any real property (such as a personal residence),
any intangible property, and tangible personal property except:

• No reporting is required for tangible personal property (such as a

car) held only for personal use. However, you must file Form
1099-A if the property is totally or partly held for use in a trade or
business or for investment.
• No reporting is required if the property securing the loan is
located outside the United States and the borrower has furnished
the lender a statement, under penalties of perjury, that the borrower

An abandonment occurs when the objective facts and
circumstances indicate that the borrower intended to and has
permanently discarded the property from use. You have “reason to
know” of an abandonment based on all the facts and circumstances
concerning the status of the property. You will be deemed to know
all the information that would have been discovered through a
reasonable inquiry when, in the ordinary course of business, you
become aware or should become aware of circumstances
indicating that the property has been abandoned. If you expect to
commence a foreclosure, execution, or similar sale within 3 months
of the date you had reason to know that the property was
abandoned, reporting is required as of the date you acquire an
interest in the property or a third party purchases the property at
such sale. If you expect to but do not commence such action within
3 months, the reporting requirement arises at the end of the
3-month period.

Statements to Borrowers
If you are required to file Form 1099-A, you must provide a
statement to the borrower. Furnish a copy of Form 1099-A or an
acceptable substitute statement to each borrower. For more
information about the requirement to furnish a statement to the
borrower, see part M in the 2010 General Instructions for Certain
Information Returns.

Account Number
The account number is required if you have multiple accounts for a
borrower for whom you are filing more than one Form 1099-A.
Additionally, the IRS encourages you to designate an account
number for all Forms 1099-A that you file. See part L in the 2010
General Instructions for Certain Information Returns.

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Instructions for Forms 1099-A and 1099-C (2010)

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Box 1. Date of Lender’s Acquisition or
Knowledge of Abandonment

!

Form 1099-C must be filed regardless of whether the debtor
is required to report the debt as income.

CAUTION

For an acquisition, enter the date you acquired the secured
property. An interest in the property generally is acquired on the
earlier of the date title is transferred to the lender or the date
possession and the burdens and benefits of ownership are
transferred to the lender. If an objection period is provided by law,
use the date the objection period expires. If you purchase the
property at a sale held to satisfy the debt, such as at a foreclosure
or execution sale, use the later of the date of sale or the date the
borrower’s right of redemption, if any, expires.

The debtor may be an individual, corporation, partnership, trust,
estate, association, or company.
Do not combine multiple cancellations of a debt to determine
whether you meet the $600 reporting requirement unless the
separate cancellations are under a plan to evade the Form 1099-C
requirements.

Coordination With Form 1099-A
If, in the same calendar year, you cancel a debt of $600 or more in
connection with a foreclosure or abandonment of secured property,
it is not necessary to file both Form 1099-A, Acquisition or
Abandonment of Secured Property, and Form 1099-C for the same
debtor. You may file Form 1099-C only. You will meet your Form
1099-A filing requirement for the debtor by completing boxes 4, 5,
and 7 on Form 1099-C. However, you may file both Forms 1099-A
and 1099-C; if you do, do not complete boxes 4, 5, and 7 on Form
1099-C. See the instructions for Form 1099-A on page 1 and Box 4,
Box 5, and Box 7 on page 4.

For an abandonment, enter the date you knew or had reason to
know that the property was abandoned unless you expect to
commence a foreclosure, execution, or similar action within 3
months, as explained earlier. If a third party purchases the property
at a foreclosure, execution, or similar sale, the property is treated
as abandoned, and you have reason to know of its abandonment
on the date of sale.

Box 2. Balance of Principal Outstanding
Enter the balance of the debt outstanding at the time the interest in
the property was acquired or on the date you first knew or had
reason to know that the property was abandoned. Include only
unpaid principal on the original debt. Do not include accrued
interest or foreclosure costs.

Who Must File
File Form 1099-C if you are:
1. A financial institution described in section 581 or 591(a)
(such as a domestic bank, trust company, building and loan or
savings and loan association).
2. A credit union.
3. Any of the following, its successor, or subunit of one of the
following:
a. Federal Deposit Insurance Corporation,
b. Resolution Trust Corporation,
c. National Credit Union Administration,
d. Any other federal executive agency, including government
corporations,
e. Any military department,
f. U.S. Postal Service, or
g. Postal Rate Commission.
4. A corporation that is a subsidiary of a financial institution or
credit union, but only if, because of your affiliation, you are subject
to supervision and examination by a federal or state regulatory
agency.
5. A federal government agency including:
a. A department,
b. An agency,
c. A court or court administrative office, or
d. An instrumentality in the judicial or legislative branch of the
government.
6. Any organization whose significant trade or business is the
lending of money, such as a finance company or credit card
company (whether or not affiliated with a financial institution). The
lending of money is a significant trade or business if money is lent
on a regular and continuing basis. Regulations section
1.6050P-2(b) lists three safe harbors under which reporting may not
be required for the current year. See Safe harbor rules below.

Box 3. Reserved
Box 4. Fair Market Value (FMV) of Property
For a foreclosure, execution, or similar sale, enter the FMV of the
property. See Temporary Regulations section 1.6050J-1T, Q/A-32.
Generally, the gross foreclosure bid price is considered to be the
FMV. If an abandonment or voluntary conveyance to the lender in
lieu of foreclosure occurred, check “Yes” in box 5 and enter the
appraised value of the property. Otherwise, make no entry in this
box.

Box 5. Was Borrower Personally Liable for
Repayment of the Debt
Enter an “X” in the applicable box to indicate whether the borrower
was personally liable for repayment of the debt at the time the debt
was created or, if modified, at the time of the last modification.

Box 6. Description of Property
Enter a general description of the property. For real property,
generally you must enter the address of the property, or, if the
address does not sufficiently identify the property, enter the section,
lot, and block.
For personal property, enter the applicable type, make, and
model. For example, describe a car as “Car — 2008 Honda Accord.”
Use a category such as “Office Equipment” to describe more than
one piece of personal property, such as six desks and seven
computers. Enter “CCC” for crops forfeited on Commodity Credit
Corporation loans.

Safe harbor rules. The three safe harbor rules in which an entity
will not be considered to have a significant trade or business of
lending money are:
1. No prior year reporting required. An organization will not
have a significant trade or business of lending money for the
current year if the organization was not required to report in the
prior year and if its gross income from lending money in the most
recent test year (see item 3 below) is less than both 15% of the
organization’s gross income and $5 million.
2. Prior year reporting requirement. An organization that had a
prior year reporting requirement will not have a significant trade or
business of lending money for the current year if, for each of the 3
most recent test years, its gross income from lending money is less
than both 10% of the organization’s gross income and $3 million.
3. No test year. Newly formed organizations are considered not
to have a significant trade or business of lending money even if the
organization lends money on a regular and continuing basis.
However, this safe harbor does not apply to an entity formed or
availed of for the principal purpose of holding loans acquired or
originated by another entity. In this instance, the transferee entity
(including real estate mortgage investment conduits (REMICs) and

Specific Instructions for Form 1099-C
The Creditor’s phone number must be provided in the
Creditor’s information box. It should be a central number for
CAUTION all canceled debts at which a person may be reached who
will insure the debtor is connected with the correct department.

!

Do not file Form 1099-C when fraudulent debt is canceled
due to identity theft. Form 1099-C is to be used only for
CAUTION cancellations of debts for which the debtor actually incurred
the underlying debt.

!

File Form 1099-C, Cancellation of Debt, for each debtor for
whom you canceled a debt owed to you of $600 or more only if:
1. You are an entity described under Who Must File on this
page and
2. An identifiable event has occurred. It does not matter
whether the actual cancellation is on or before the date of the
identifiable event. See When Is a Debt Canceled on page 3.

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Instructions for Forms 1099-A and 1099-C (2010)

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Instructions for Forms 1099-A and 1099-C (2010)

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pass-through securitized indebtedness arrangements) may be
required to report cancellation of indebtedness on Form 1099-C.
See Regulations section 1.6050P-1(e)(5).

4. A cancellation or extinguishment when the creditor elects
foreclosure remedies that by law end or bar the creditor’s right to
collect the debt. This event applies to a mortgage lender or holder
who is barred by local law from pursuing debt collection after a
“power of sale” in the mortgage or deed of trust is exercised.
5. A cancellation or extinguishment due to a probate or similar
proceeding.
6. A discharge of indebtedness under an agreement between
the creditor and the debtor to cancel the debt at less than full
consideration.
7. A discharge of indebtedness because of a decision or a
defined policy of the creditor to discontinue collection activity and
cancel the debt. A creditor’s defined policy can be in writing or an
established business practice of the creditor. A creditor’s practice to
stop collection activity and abandon a debt when a particular
nonpayment period expires is a defined policy.
8. The expiration of nonpayment testing period. This applies
only to entities described in numbers 1, 2, 3, and 4 under Who Must
File on page 2. This event occurs when the creditor has not
received a payment on the debt during the testing period. The
testing period is a 36-month period ending on December 31 plus
any time when the creditor was precluded from collection activity by
a stay in bankruptcy or similar bar under state or local law. The
creditor can rebut the occurrence of this identifiable event if:
a. The creditor (or a third-party collection agency) has engaged
in significant bona fide collection activity during the 12-month period
ending on December 31 or
b. Facts and circumstances that exist on January 31 following
the end of the 36-month period indicate that the debt was not
canceled.
Significant bona fide collection activity does not include nominal
or ministerial collection action, such as an automated mailing. Facts
and circumstances indicating that a debt was not canceled include
the existence of a lien relating to the debt (up to the value of the
security) or the sale or packaging for sale of the debt by the
creditor.

Test year defined. A test year is a taxable year of the
organization that ends before July 1 of the previous calendar year.
For example, X, a calendar year taxpayer who has a significant
trade or business of lending money, is formed in year one. X will
not have a test year in year one or year two. However, for year
three, X’s test year will be year one. In year three, year one is the
only year that ended before July 1 of the previous calendar year (in
this example, year two).
Penalties. There are penalties for failure to file correct information
returns by the due date and for failure to furnish correct payee
statements. See part O in the 2010 General Instructions for Certain
Information Returns for details.
Exceptions. Until further guidance is issued, no penalty will
apply for failure to file Form 1099-C, or provide statements to
debtors, for amounts:
• Discharged in nonlending transactions or
• Forgiven pursuant to the terms of a debt obligation.
Multiple creditors. If a debt is owned (or treated as owned for
federal income tax purposes) by more than one creditor, each
creditor that is described under Who Must File on page 2 must
issue a Form 1099-C if that creditor’s part of the canceled debt is
$600 or more. A creditor will be deemed to have met its filing
requirements if a lead bank, fund administrator, or other designee
of the creditor complies on its behalf. The designee may file a
single Form 1099-C reporting the aggregate canceled debt or may
file Form 1099-C for that creditor’s part of the canceled debt. Use
any reasonable method to determine the amount of each creditor’s
part of the canceled debt.
Debt owned by a partnership is treated as owned by the
partners and must follow the rules for multiple creditors.
Pass-throughs and REMICs. Until further guidance is issued, no
penalty will apply for failure to file Form 1099-C, or provide
statements to debtors, for a canceled debt held in a pass-through
securitized debt arrangement or held by a REMIC. However, see
item 3 under Safe harbor rules on page 2.
A pass-through securitized debt arrangement is any
arrangement in which one or more debts are pooled and held for 20
or more persons whose interests in the debt are undivided
co-ownership interests that are freely transferable. Co-ownership
interests that are actively traded personal property (as defined in
Regulations section 1.1092(d)-1) are presumed to meet these
requirements.

Exceptions
You are not required to report on Form 1099-C the following:
1. Certain bankruptcies. You are not required to report a debt
discharged in bankruptcy unless you know from information
included in your books and records that the debt was incurred for
business or investment purposes. If you are required to report a
business or investment debt discharged in bankruptcy, report it for
the later of:
a. The year in which the amount of discharged debt first can be
determined or
b. The year in which the debt is discharged in bankruptcy.
A debt is incurred for business if it is incurred in connection with
the conduct of any trade or business other than the trade or
business of performing services as an employee. A debt is incurred
for investment if it is incurred to purchase property held for
investment (as defined in section 163(d)(5)).
2. Interest. You are not required to report interest. However, if
you choose to report interest as part of the canceled debt in box 2,
you must show the interest separately in box 3.
3. Nonprincipal amounts. Nonprincipal amounts include
penalties, fines, fees, and administrative costs. For a lending
transaction, you are not required to report any amount other than
stated principal. A lending transaction occurs when a lender loans
money to, or makes advances on behalf of, a borrower (including
revolving credit and lines of credit). For a nonlending transaction,
nonprincipal amounts are included in the debt. However, until
further guidance is issued, no penalties will be imposed for failure
to report these amounts in nonlending transactions.
4. Foreign debtors. Until further guidance is issued, no penalty
will apply if a financial institution does not file Form 1099-C for a
debt canceled by its foreign branch or foreign office for a foreign
debtor provided all the following apply:
a. The financial institution is engaged in the active conduct of a
banking or similar business outside the United States.
b. The branch or office is a permanent place of business that is
regularly maintained, occupied, and used to carry on a banking or
similar financial business.
c. The business is conducted by at least one employee of the
branch or office who is regularly in attendance at the place of
business during normal working hours.

Debt Defined
A debt is any amount owed to you including stated principal, stated
interest, fees, penalties, administrative costs, and fines. The
amount of debt canceled may be all or only part of the total amount
owed. However, for a lending transaction, you are required to report
only the stated principal. See Exceptions on this page.

When To File
Generally, file Form 1099-C for the year in which an identifiable
event occurs. See Exceptions on this page. If you cancel a debt
before an identifiable event occurs, you may choose to file Form
1099-C for the year of cancellation. No further reporting is required
even if a second identifiable event occurs on the same debt. Also,
you are not required to file an additional or corrected Form 1099-C
if you receive payment on a prior year debt.

When Is a Debt Canceled
A debt is canceled on the date an identifiable event occurs. An
identifiable event is:
1. A discharge in bankruptcy under Title 11 of the U.S. Code for
business or investment debt (see Exceptions below).
2. A cancellation or extinguishment making the debt
unenforceable in a receivership, foreclosure, or similar federal or
state court proceeding.
3. A cancellation or extinguishment when the statute of
limitations for collecting the debt expires, or when the statutory
period for filing a claim or beginning a deficiency judgment
proceeding expires. Expiration of the statute of limitations is an
identifiable event only when a debtor’s affirmative statute of
limitations defense is upheld in a final judgment or decision of a
court and the appeal period has expired.

Instructions for Forms 1099-A and 1099-C (2010)

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Instructions for Forms 1099-A and 1099-C (2010)

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d. The indebtedness is extended outside the United States by
the branch or office in connection with that trade or business.
e. The financial institution does not know or have reason to
know that the debtor is a U.S. person.
5. Related parties. Generally, a creditor is not required to file
Form 1099-C for the deemed cancellation of a debt that occurs
when the creditor acquires the debt of a related debtor, becomes
related to the debtor, or transfers the debt to another creditor
related to the debtor. However, if the transfer to a related party by
the creditor was for the purpose of avoiding the Form 1099-C
requirements, Form 1099-C is required. See section 108(e)(4).
6. Release of a debtor. You are not required to file Form
1099-C if you release one of the debtors on a debt as long as the
remaining debtors are liable for the full unpaid amount.
7. Guarantor or surety. You are not required to file Form
1099-C for a guarantor or surety. A guarantor is not a debtor for
purposes of filing Form 1099-C even if demand for payment is
made to the guarantor.
8. Seller financing. Organizations whose principal trade or
business is the sale of non-financial goods or non-financial
services, and who extend credit to customers in connection with the
purchase of those non-financial goods and non-financial services,
are not considered to have a significant trade or business of lending
money, with respect to the credit extended in connection with the
purchase of those goods or services, for reporting discharge of
indebtedness on Form 1099-C. See Regulations section
1.6050P-2(c). But the reporting applies if a separate financing
subsidiary of the retailer extends the credit to the retailer’s
customers.

the IRS. You may use Form W-9, Request for Taxpayer
Identification Number and Certification, to request the TIN.
However, a debtor is not required to certify his or her TIN under
penalties of perjury.

Statements to Debtors
If you are required to file Form 1099-C, you must provide a
statement to the debtor. Furnish a copy of Form 1099-C or an
acceptable substitute statement to each debtor. In the 2010
General Instructions for Certain Information Returns, see:
• Part M for more information about the requirement to furnish a
statement to the debtor, and
• Part J for specific procedures to complete Form 1099-C for
debtors in bankruptcy.

Account Number
The account number is required if you have multiple accounts for a
debtor for whom you are filing more than one Form 1099-C.
Additionally, the IRS encourages you to designate an account
number for all Forms 1099-C that you file. See part L in the 2010
General Instructions for Certain Information Returns.

Box 1. Date Canceled
Enter the date the debt was canceled. See When Is a Debt
Canceled on page 3.

Box 2. Amount of Debt Canceled
Enter the amount of the canceled debt. See Debt Defined on page
3 and Exceptions on page 3. Do not include any amount the lender
receives in satisfaction of the debt by means of a settlement
agreement, foreclosure sale, etc.

Multiple Debtors
For debts of $10,000 or more incurred after 1994 that involve
debtors who are jointly and severally liable for the debt, you must
report the entire amount of the canceled debt on each debtor’s
Form 1099-C. Multiple debtors are jointly and severally liable for a
debt if there is no clear and convincing evidence to the contrary. If it
can be shown that joint and several liability does not exist, a Form
1099-C is required for each debtor for whom you canceled a debt of
$600 or more.
For debts incurred before 1995 and for debts of less than
$10,000 incurred after 1994, you must file Form 1099-C only for the
primary (or first-named) debtor.
If you know or have reason to know that the multiple debtors
were husband and wife who were living at the same address when
the debt was incurred, and you have no information that these
circumstances have changed, you may file only one Form 1099-C.

Box 3. Interest if Included in Box 2
Enter any interest you included in the canceled debt in box 2. You
are not required to report interest in box 2. But if you do, you also
must report it in box 3.

Box 4. Debt Description
Enter a description of the origin of the debt, such as student loan,
mortgage, or credit card expenditure. Be as specific as possible. If
you are filing a combined Form 1099-C and 1099-A, include a
description of the property.

Box 5. Was Borrower Personally Liable for
Repayment of the Debt
Enter an “X” in the applicable box to indicate whether the borrower
was personally liable for repayment of the debt at the time the debt
was created or, if modified, at the time of the last modification.

Recordkeeping
If you are required to file Form 1099-C, you must retain a copy of
that form or be able to reconstruct the data for at least 4 years from
the due date of the return.

Box 6. Check for Bankruptcy
Check the box if you are reporting a debt discharged in bankruptcy.

Box 7. Fair Market Value (FMV) of Property

Requesting TINs

If you are filing a combined Form 1099-C and 1099-A for a
foreclosure, execution, or similar sale, enter the FMV of the
property. Generally, the gross foreclosure bid price is considered to
be the FMV. If an abandonment or voluntary conveyance to the
lender in lieu of foreclosure occurred, enter the appraised value of
the property.

You must make a reasonable effort to obtain the correct name and
taxpayer identification number (TIN) of the person whose debt was
canceled. You may obtain the TIN when the debt is incurred. If you
do not obtain the TIN before the debt is canceled, you must request
the debtor’s TIN. Your request must clearly notify the debtor that
the IRS requires the debtor to furnish its TIN and that failure to
furnish such TIN subjects the debtor to a $50 penalty imposed by

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Instructions for Forms 1099-A and 1099-C (2010)