Identification

• Form 1099-C is an IRS document issued by a creditor when it forgives a debt of $600 or more. The form is very brief, consisting mostly of contact information describing the debtor and the creditor, and the amount and nature of the debt being forgiven. The form is a single page, but is usually filled out in duplicate.
  
  

Function

• The purpose of Form 1099-C is to report forgiven debts so they can be converted into income for tax purposes. If an individual receives a loan, it is not taxed as income. If the debt is forgiven and not paid, the loan can become taxable income. The form serves as notification to both the debtor and the Internal Revenue Service.
  
  

Significance

• Receipt of a 1099-C is likely to be welcomed by a debtor because it signals the forgiveness of debt, which can greatly improve their financial condition and ability to obtain future loans. On the other hand, it is likely to create a new tax liability that can exceed the debtor's disposable income. If the additional tax liability is not significant, the balance tips overwhelmingly towards the positive.
  
  

Types

• Form 1099-C, as the name implies, is just one variety of many 1099 forms, all of which have to do with the reporting certain kinds of income. Freelance artists and writers who do not receive a W-2 will have their income reported by their employer through a Form 1099. Another variation of the form is used by investment brokers to report dividends, interest and capital gains.
  
  

Considerations

• Not all forgiven debt becomes taxable income. First the debt must exceed $600 to trigger a 1099-C. Debts forgiven by a federal government agency or a financial institution, credit union or other lender generally do become taxable. On the other hand, certain student loans, qualified farm debt, qualified real property business debt, debts canceled or reduced mortgages can be fully or partially excluded from a debtor's income.