(This is for educational purposes only and does not constitute
tax advice. For information about your individual situation, please
consult with a licensed tax professional.)
The purpose of this page is to answer frequently asked questions
about IRS 1099-C. One will receive an IRS form 1099-C in the event
that a creditor agreed to settle a debt for less than the balance
owed and the debt was greater than $600. In the event that you
settled a debt for less than the balance owed, the creditor is
allowed to report the amount of the balance they compromised as a
loss on their income statement. Since you never paid the full debt
back, the IRS treats the amount you did not pay as income. For
example, let’s assume you settled a $10,000 debt for $4,000. The IRS
expects you to report the difference, or $6,000, on your income tax
return for the year in which the settlement occurred, even though
you never actually received the money.
What is an IRS 1099-C?
An IRS 1099-C is a form that notifies a taxpayer that the
creditor intends to “write off” the remaining portion of the unpaid
balance on their taxes for that year. It is filed by the creditor
with the IRS when a settlement is reached or when a creditor has
determined that a debt will never be paid. The purpose of the IRS
1099-C is to alert the taxpayer that they may be liable to report
the forgiven portion of the balance on their taxes.
What if I haven’t received a 1099-C form?
For settled debts less than $600, you will not be liable to report
the forgiven portion on your taxes. Otherwise creditors are
responsible for sending you a 1099-C by the 31st of January before
that year’s taxes are due. Creditors must send a 1099-C to the IRS
by February of that tax year.
What should I do if I receive a 1099-C for a settled debt?
You need to report the forgiven portion of the balance as income on
your tax returns. The amount shown in box 2 of the 1099-C is the
portion you are expected to report as income. It is possible,
however, that you are not liable to actually pay taxes on the
When are taxpayers not liable to pay taxes on forgiven debts?
There are five situations when a taxpayer is not responsible for
paying taxes on the forgiven balance:
1. When the debt was discharged through filing bankruptcy.
2. When the debtor was technically insolvent at the time of
settlement. A debtor is considered insolvent when their debts exceed
3. When the debt was due to a qualified farm expense.
4. When the debt was due to certain real property business losses.
5. When the discharge of the debt was treated as a gift.
To learn whether you qualify for these circumstances, you may want
to consult a licensed tax professional.
I was insolvent at the time of my debt settlement. What should I
If you were insolvent at the time of settlement, you will need
to either fill out IRS form 982 or attaching a letter to your tax
return that details your total debts and assets. You may also want
to consult with a tax professional for advice.