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We forgave a business loan in January 2012, some time after the borrower had filed for bankruptcy. We never filed a Form 1099-C. When is that form required to be filed? – IBA Compliance Connection

IBA Compliance Connection

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We forgave a business loan in January 2012, some time after the borrower had filed for bankruptcy. We never filed a Form 1099-C. When is that form required to be filed?

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The timing for filing Form 1099-C depends on when a number of events related to the loan occur, and the fact that a borrower filed for bankruptcy may change the timing. The IRS instructions state that a form 1099-C should be filed “for the year in which an identifiable event occurs.” IRS Instructions, Form 1099-C, When to File26 CFR 1.6050P(b)(2).

“Identifiable events” include a discharge from a Chapter 11 bankruptcy (unless you cannot determine the amount of the debt until after the bankruptcy discharge, in which case an exception applies — IRS Instructions, Form 1099-C, Exceptions). (Another “identifiable event” is the end of a 36-month period in which you have no received any payments on the debt.) With that in mind, we would ask your loan officer the following questions:

  • Did the borrower file for bankruptcy under Chapter 11?
  • If yes, when was the debt discharged in the bankruptcy action? (This may be different than the time when accounting rules required your institution to write-off the loan.)
  • Was it possible to determine the amount of the discharged debt immediately? If not, when were you first able to determine the amount of the discharged debt?