Identifiable event date on 1099-C

[schirallicpa]

I have a client that is telling me how old these debts are that he is not getting a 1099C for.  And it is raising some questions in my mind.  The rules say that the 1099C has to be issued by Jan 31 of the first year following the date of cancellation.  However, he's telling me that this debt is from several years ago.  And what also stinks, is that this debt was in his name and soc for his wife's car.  they have since divorced.  So she is scott free, and he gets this out of the blue several years later.  Not fair.

I don't think we can contest the amount, but is there any way to contest the date?

 

[Lion EA]

Check your state law.  Each state determines how long a company has to decide to forgive debt/write it off their books/stop actively trying to collect it.  I remember from a seminar, banks in many states have three years, but other states have different regulations, such as six years.

[schirallicpa]

that's interesting.  I will take a look.

 

[Jack from Ohio]

The 1099-C will only be issued AFTER the lending institution clears the debt from their books.  I have seen this be as much as 3 years.  When the debt was forgiven is not the date that matters.

I have dealt with this issue several times.  The client is at the mercy of the bookkeeping practices of the lending institution.

[SaraEA]

The banks still have a lot of bad debt lingering from the mortgage crisis.  If they wrote it off all at once they'd be way undercapitalized and the regulators would step in.  Thus they set aside a certain amount of "loan loss reserves" each year.  They cancel the exact right amount of debt each year to keep the reserve account with a decent balance and their capitalization ratios legal.  This is why they hang on to some debt for years before they finally cancel it--it has to fit into the books.

I just realized something this week that makes me feel like an idiot for not thinking it through before.  We are all familiar with clients getting 1099As after a foreclosure and often the Cs don't come for a few years.  Bummer for them because by the time they get the C they no longer have a mortgage and are not insolvent like they would have been if they got the C when the foreclosure happened.  Had two clients within the week who got As and gave up homes with FMVs more than the mortgages.  Duh...these clients will never get Cs because no debt was cancelled.  They owed the bank maybe $300k and gave them a house worth $400k.  Bank wins.

[schirallicpa]

I have worked for larger corporations in the past and their ability to set up reserves and manipulate figures was one of my reasons of getting out of big corp.  I find it absolutely unethical that the corps that forgave the debt 4 or 5 years ago can control when it is reported.  

I feel a letter to my senator coming on.............................

[Randall]

5 hours ago, schirallicpa said:

I have worked for larger corporations in the past and their ability to set up reserves and manipulate figures was one of my reasons of getting out of big corp.  I find it absolutely unethical that the corps that forgave the debt 4 or 5 years ago can control when it is reported.  

I feel a letter to my senator coming on.............................

I agree.  It seems extremely ludicrous that the so called date of cancellation is several years after the events take place.  Has anyone heard of any recourse one can appeal to IRS to consider the effective date of cancellation to be the earlier date or year the 1099A is issued.  Seems to be one area that the IRS could issue a reg or something to rectify this.