Forms 1099-A and 1099-C: Which Form to File for Loan Transactions

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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

  1. 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.
  2. 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.
  3. Definitions:
    • 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

  1. Filing Requirement – If you cancel debt of $600 or more for a debtor.
  2. Due Date – Same as form 1099-A discussed above.
  3. Definitions:
    • 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
  1. Exceptions from reporting on form 1099-C
    • 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.

 

 

 

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