1099-C from IRS?
Posted By: Jennifer O'Neill // Apr 19, 2017
I recently conducted a Collection Due Process Hearing with an IRS Appeals representative on a client's account. The Issue was the filing of a Federal Tax Lien and the impact on the taxpayer's future employment as a result. During our conference the discussion led to the expiration of the collection Statute. The current Installment agreement accepted and in place was deemned a partial pay agreement and some portion of the assessment with accruals would go unpaid in the current agreement. The agreement amount is all the taxpayer can afford to pay. The collection expiration would result in a retired balance of approximatley $20,000. The IRS requested the agreement be increased to meet the full pay calculation with accruals and then a Lien release could be discussed. The taxpayer could not increase the payment so the Lien stays as filed. The potential employment hardship was denied and thats when the agent mentioned the IRS could potentially send the taxpayer a 1099-C for the cancellation of the debt that expires! I must say when I heard this I literally had no response. I wasn't sure if the Appeals officer was serious or was trying to leverage the case to get my client to find funding to full pay the case. My inquiry further led to the Agent advising that this has become a topic of discussion in training at the IRS. Some day soon we may find this to be relevant for accounts that expire with open balances. As most of us know the issuance of a 1099-C is related to the cancelation of debt where the taxpayer had use of the funds but failed to repay them and in the foregiveness arises taxable income. The most common occurance is the deafult on credit card balances and home foreclosures with unpaid mortgages. In these instances if the taxpayer can prove to be insolvent at the time of default the 1099-C reporting is not taxable. The issuance of a 1099 -C in these instances would create a new liability with new collection statutes. A second collection case for the balance not previously collected. My purpose of this post is not to dive into the 1099-C reporting but to make aware the discussion in a conference that this topic has been discussed within the IRS Collection Division. Updates will follow as my research into this topic expands.
James T. Rindfleisch, EA