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Old 01-31-2015, 03:52 PM
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1099 canceled debt

Hello~~In 2013, we negotiated a settlement on an old debt. We made the last payment on 21 December of that year. It cleared our bank before the end of the year. Our agreement with the company was that upon receipt of that payment, the balance of the debt would be forgiven. The IRS says that forgiven debts must be claimed and taxes paid on them in the year they were forgiven, whether a 1099 is received or not. We did not receive a 1099.

We included the income in our tax return for 2013 and paid the required taxes on it. (We were not insolvent in 2013.)

Yesterday, we received a year 2014 1099 on the debt. I suppose our choices are two: We can submit an amended 2013 tax return and wait for the refund, or we can send an explanation with our tax return for 2014, without including this income.

What do you suggest?



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Old 02-01-2015, 09:10 PM
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Join Date: Oct 2010
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Quote:
Originally Posted by catherder View Post
Hello~~In 2013, we negotiated a settlement on an old debt. We made the last payment on 21 December of that year. It cleared our bank before the end of the year. Our agreement with the company was that upon receipt of that payment, the balance of the debt would be forgiven. The IRS says that forgiven debts must be claimed and taxes paid on them in the year they were forgiven, whether a 1099 is received or not. We did not receive a 1099.

We included the income in our tax return for 2013 and paid the required taxes on it. (We were not insolvent in 2013.)

Yesterday, we received a year 2014 1099 on the debt. I suppose our choices are two: We can submit an amended 2013 tax return and wait for the refund, or we can send an explanation with our tax return for 2014, without including this income.

What do you suggest?
some people received 1099-C Cancellation of debt even 9 years later; your lender may not have finished the paperwork in 2013, so they may issue one for 2014 possibly. you can send an explanation with your tax return for 2014 since you already included the income in your tax return for 2013. Any time that you have a lender who forgives or cancels a debt that you owe, the IRS requires that they send you a 1099-C to report the amount of debt that was cancelled. This then becomes taxable income to you. I realize that it is not really income, in the sense that you earned money, but in the eyes of the IRS it is treated as income since you received something in the form of goods or services or cash which you did not have to repay.



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