Leveraging New IRS Rules Eliminating 36-Month Testing Period for Cancellation of Debt Income

Description

In Oct. 2014, the IRS issued new rules proposed to repeal the requirement for lenders to issue Form 1099-C to borrowers upon the close of a 36-month nonpayment of debt testing period. Federal tax advisors must understand the changes under the new regs to determine when to file Form 1099-C according to the revised requirements. Comments will be accepted until Jan. 13, 2015.

Previous IRS regulations required lenders to issue Form 1099-C to borrowers and the IRS after the conclusion of any 36-month period during which the borrower made no payments. Under the proposed regulations, seven “identifiable events” remain to trigger 1099-C filing, including discharges in bankruptcy, foreclosure or probate, among others.

Both creditors and business entities whose debt has been canceled must understand each of these criteria, as well as the instances when canceled debt is excluded from gross income and real property business indebtedness. Understanding the most recent IRS rules is crucial to ensuring that your clients are taxed on the lowest amount of COD income possible under the law.

Listen as our panel of experienced tax accountants and attorneys delivers a thorough briefing on the regulatory changes under Sect. 6050P for COD income, and cuts through the complexities of the tax law to explain the bottom line on when COD income must be recognized, and which federal forms must be filed by debtors and creditors.