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When should you file a 1099-C form for your business with the IRS? 

If you are a creditor who has provided loans that have been defaulted on, filing a 1099-C may be one of the ways in which to address the default on the loan. Typically, a defaulted loan can be placed in collections or taken to court to recover from the borrower. However, when these options seem futile due to the borrower’s inability to pay the debt, filing the 1099-C form with the IRS is a way to resolve the issue.

What is a 1099-C form used for?

The IRS 1099-C form is used by creditors to forgive or discharge debt that exceeds $600 in value for debtors that have defaulted on their loan. The form has three portions, Copy A, B, and C. All three components make up the full 1099-C form which is then filed with the IRS to forgive the debt owed by the borrower/debtor. Doing this then allows the IRS to claim the cancelled debt as taxable income for the borrower/debtor.

How does a 1099-C affect your taxes?

One way to address the filing of a 1099-C form is to incorporate such an action in your business loan agreements that are used with borrowers. In adding such a clause that clarifies that should failure to pay the loan/debt the creditor will file a 1099-C form with the IRS forgiving the loan and thus making it taxable income for that debtor for the given year that the debt is forgiven. Such a clause would also provide information for the borrowers/debtors that they should be expecting one of the portions of the 1099-C form, Copy B, which they should use to file with the IRS for their own 1040 or 1040-SR form.

Important 1099-C Instructions

As every form that is filed with the IRS has its own set of instructions, so does the 1099-C. These instructions are updated on a yearly basis should any information change from year to year. The current 2021 instructions provide the deadlines by which the different portions of the 1099-C need to be filed with the IRS and with a borrower/debtor. Keep these important deadlines in mind, which can also be included in a provision of your business loan agreement. Under the 2021 instructions a creditor must furnish to the borrower/creditor Copy B of the 1099-C form by January 31, 2022 and must file Copy A of the 1099-C form with the IRS by February 28, 2022 or electronically by March 31, 2022.

If you need advice on Tax Law Issues, do not hesitate to contact one of our experienced business attorneys at EPGD Business Law, EPGD Business Law is located in beautiful Coral Gables, West Palm Beach and historic Washington D.C. Call us at (786) 837-6787, or contact us through the website to schedule a consultation.

*Disclaimer: this blog post is not intended to be legal advice. We highly recommend speaking to an attorney if you have any legal concerns. Contacting us through our website does not establish an attorney-client relationship.*

EPGD Business Law is located in beautiful Coral Gables, West Palm Beach and historic Washington D.C. Call us at (786) 837-6787, or contact us through the website to schedule a consultation.

*Disclaimer: this blog post is not intended to be legal advice. We highly recommend speaking to an attorney if you have any legal concerns. Contacting us through our website does not establish an attorney-client relationship.*

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*The following comments are not intended to be treated as legal advice. The answer to your question is limited to the basic facts presented. Additional details may heavily alter our assessment and change the answer provided. For a more thorough review of your question please contact our office for a consultation.
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