As we’re looking at year-end reporting requirements, it’s important not to forget about 1099-A, Acquisition or Abandonment of Secured Property, and form 1099-C, Cancellation of Debt. We have guidance that tells us forgiveness of Paycheck Protection Program (PPP) loans do not require either of these filings, but what about other loan transactions?
The instructions for the preparation of these forms is fairly general, and it should be noted that sometimes the filing of form 1099-A is required, and other times the filing of form 1099-C is required, but never are both required to be filed in the same year. If you both cancel a debt and acquire an interest in secured property in the same calendar year, file form 1099-C only. Below is more information on filing requirements.
Form 1099-A, Acquisition or Abandonment of Secured Property
- Filing Requirement – 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 the property was abandoned.
- Due Date – You must furnish a copy of form 1099-A to the borrower by February 1, 2021. A copy must be filed with the IRS by March 1, 2021, or by March 31, 2021 if filed electronically. The penalty for not filing is $270 per form for failing to file.
- Definitions:
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- Property – Any real property (including personal residence), any intangible property, and tangible personal property (not including 100% personal use property such as a car).
- Abandonment – Occurs when the objective facts and circumstances indicate that the borrower intended to and has permanently discarded the property from use.
Form 1099-C, Cancellation of Debt
- Filing Requirement – If you cancel debt of $600 or more for a debtor.
- Due Date – Same as form 1099-A discussed above.
- Definitions:
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- Debt – Any amount owed to you including principal, interest, fees, penalties, administrative costs, and fines. The amount of debt cancelled may be all or only a part of the total amount owed. You are required to report only the principal.
- Cancellation –
- A discharge in bankruptcy under Title 11 for business or investment debt
- A cancellation makes the debt unenforceable in a receivership, foreclosure or similar court proceeding
- A cancellation occurs when the statute of limitations for collecting the debt expires
- A cancellation occurs when the creditor elects foreclosure remedies that by law end the creditor’s right to collect
- A cancellation due to a probate or similar proceeding
- A discharge of indebtedness under an agreement between the creditor and the debtor to cancel the debt at less than full consideration
- A discharge of indebtedness because of a decision or a defined policy of the creditor to discontinue collection activity and cancel the debt
- Exceptions from reporting on form 1099-C
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- Cancellation of non-business or non-investment debts in bankruptcy
- Not required to report interest
- Not required to report non-principal amounts
- A foreign branch cancelling a debt of a foreign debtor
- Transfers of debt between related debtors are not a cancellation
- Release of a debtor on a debt if other debtors are fully liable is not a cancellation
- You are not required to file a form 1099-C for a guarantor
- Sellers financing sale of non-financial goods or services are not in business of lending money
- Student loan indebtedness if due to the student’s death or permanent and total disability
It is important to distinguish between the “discharge” of debt and payment by transferring collateral. The transfer of collateral in foreclosures or deed in lieu is a sale of the property by the debtor. This would require a form 1099-A, but not always a 1099-C. If the discharge is relief of the debtor for no consideration, it requires a Form 1099-C if over $600.
Feel free to reach out to a K·Coe advisor for clarifications on 1099 guidance and applicability.
