Do you need to report information on a 1099 C to the IRS?

Answer 1

A 1099-C is given by someone who has discharged or forgiven a debt to you. It is reported to the IRS by them on that form. (So your reporting it is telling them something they already know). As this constitutes taxable income to you, you must account for it on your return (and estimated payments before the filing). Further explanation: Lets start with a basic tax concept: If you receive something of value (from someone other than family), you have received a taxable income. (The one giving it rightfully has an expense). For example, remember the Oprah Winfrey thing where the audience got cars� And then found out they owed taxes on the value of the cars. In fact, when Oprah stepped up to pay the tax for them, she had to actually pay more than the tax on the car, (called a gross up), as the money she gave them to pay the tax is also taxable. Hand in hand with that, and the example above, if you get a loan, it is NOT taxable income. The money was exchanged for the equally valued promise to repay. So taking the example above, if a buyer receives the $100 merchandise and gives $100 value for it, obviously nothing income taxable to the buyer. But in this case the buyer receives the $100 of value and say makes a deal in year 2 that if the $100 promise it gave is forgiven for a payment of $75 sent today (frequently offered with words like "because it's all I have and otherwise you ain't getting nothing�."), then the $25 is considered a cancellation of indebtedness. COD income is taxable to the recipient. It isn't a loan/exchange of value anymore, it's a gift of value, and value, as in Oprah is taxable. While no one likes to pay tax, it is the correct outcome. The advantage is the debtor doesn't owe anything anymore, other than tax on the gift. So, simplified again: Receiving money is taxable. Receiving a loan isn't. Receiving a loan, and then saying it wasn't a loan (no repayment), so your just getting money that you don't want to pay taxes on, simply doesn't fly. This COD is a very big issue in major corporation financial reorganizations. When these companies financially restructure (Chapter 11 Bankruptcy), and creditors, generally Bondholders, agree to take less than the bond was issued for�and we are talking billions of dollars here frequently, the company has COD income of the amount forgiven.