We believe that you may turn off IRS Form 1098 notices for the year if no mortgage interest has been paid on the loan during the year, but we do not recommend turning off IRS Form 1098 notices permanently for loans that have been charged off until your institution has cancelled or sold the loans.

Form 1098 is an IRS tax form used to report mortgage interest of $600 or more received during the year from an individual. If you file a Form 1098, you must send a Form 1098 Mortgage Interest Statement to the customer. If a customer has paid less than $600 of mortgage interest, a Form 1098 is not required. Consequently, you are not required to issue a Form 1098 notice to customers who have paid no mortgage interest in the past year.

However, we do not recommend turning off Form 1098 notices permanently. Even if you have charged off a loan (an accounting procedure), the borrower is still responsible for paying the loan and any accrued interest. For this reason, we do not recommend permanently terminating Form 1098 notices for charged off debts that remain with your bank in the unlikely event that these debts are later successfully collected by your institution or voluntarily paid by your customer.

On the other hand, if your institution has already agreed to cancel a charged off loan or has sold it to a third party, such as a debt collector, we believe that you may turn off Form 1098 notices permanently. These debts would no longer belong to your institution, and there would be no possibility of your institution receiving any mortgage interest on them or being required to issue a Form 1098 notice.

For resources related to our guidance, please see:

• Internal Revenue Code, 26 USC 6050H(a) (“Any person — (1) who is engaged in a trade or business, and (2) who, in the course of such trade or business, receives from any individual interest aggregating $600 or more for any calendar year on any mortgage, shall make the return described in subsection (b) with respect to each individual from whom such interest was received at such time as the Secretary may by regulations prescribe.”)

• IRS, Instructions for Form 1098 (2021) (“Use Form 1098, Mortgage Interest Statement, to report mortgage interest (including points, defined later) of $600 or more you received during the year in the course of your trade or business from an individual, including a sole proprietor. . . .”)

• Internal Revenue Code, 26 USC 6050H(d) (“Every person required to make a return under subsection (a) shall furnish to each individual whose name is required to be set forth in such return a written statement showing—

• (1) the name, address, and phone number of the information contact of the person required to make such return, and
• (2) the aggregate amount of interest described in subsection (a)(2) (other than points) received by the person required to make such return from the individual to whom the statement is required to be furnished (and the information required under subparagraphs (C), (D), (E), and (F) of subsection (b)(2)).

The written statement required under the preceding sentence shall be furnished on or before January 31 of the year following the calendar year for which the return under subsection (a) was required to be made.”)

• 26 CFR 1.166-3(a)(2)(i) (“If, from all the surrounding and attending circumstances, the district director is satisfied that a debt is partially worthless, the amount which has become worthless shall be allowed as a deduction under section 166(a)(2) but only to the extent charged off during the taxable year. . . .”)