BHoffman Posted February 25, 2018 Report Share Posted February 25, 2018 My client co-signed a student loan with her adult son with Chase bank and has now received a 1099-C. I've been researching and found Treasury Reg Sec 1.6050P-1(d)(7). I believe it says Chase should not have issued her the 1099C. I gave her a copy of the 1099C (she had not opened the envelope!), but if all else fails, how do I report this and then exclude it from her income? I was thinking of form 982 with no exclusion box and including the following note: "PURSUANT TO TREASURY REGULATION SEC. 1.6050P-1(7) THE 1099-C ISSUED MISTAKENLY TO HER BY CHASE BANK IS EXCLUDED AS SHE WAS A COSIGNER ON THIS STUDENT LOAN. THE BORROWER IS HER SON." Or, is she on the hook? Her adult son is probably insolvent. Any advice? Quote Link to comment Share on other sites More sharing options...
jasdlm Posted February 26, 2018 Report Share Posted February 26, 2018 I think your client should contact the lender and request a corrected 1099 be filed. Your client didn't benefit from the loan money, so it shouldn't be taxable given that is forgiven (as you point out and reference Treas Reg re: the same), but I don't know that you can fix it on a 982. You can point the lender toward the 1099-A/1099-C instructions, number 7 under the exceptions. This will likely be a pain, but I'm not sure the 982 will solve the problem. Quote Link to comment Share on other sites More sharing options...
Pacun Posted February 26, 2018 Report Share Posted February 26, 2018 You don't have to benefit from the debt to be responsible once you signed the loan documents. What the 1099-C reads is that you were responsible for a debt and that the bank forgave that debt because it was easier to let you go vs trying to collect their money. I am surprise the bank didn't go after the co-signer since he/she is solvent and if I were your client, I wouldn't call the bank to re-open the case. You must be insolvent in order to use the 982 shield, so your client most likely is liable for the tax. 2 Quote Link to comment Share on other sites More sharing options...
Max W Posted February 26, 2018 Report Share Posted February 26, 2018 Being responsible to the lender is one issue. Being responsible for the 1099C is another. The 1099C should not have been issued to the guarantor, but the banks invariable do this. Unless the bank issues a corrected 1099C, which is a near impossibility, the only solution is to wait for the IRS to issue a CP2000 and then appeal it. In fact, I´m doing just that for a client that co-signed on a $500K loan that defaulted. 1 Quote Link to comment Share on other sites More sharing options...
ILLMAS Posted February 26, 2018 Report Share Posted February 26, 2018 If this was a federal back loan wouldn’t the co-signer be held responsible? Also you mentioned a $500K loan, in order for your client to qualify, her income had to be high and maybe that why they are going after her. Quote Link to comment Share on other sites More sharing options...
BHoffman Posted February 26, 2018 Author Report Share Posted February 26, 2018 From what I gather, the bank can go after the co signer for payment if the borrower defaults, but only the borrower gets a 1099C. Quote Link to comment Share on other sites More sharing options...
ILLMAS Posted February 26, 2018 Report Share Posted February 26, 2018 48 minutes ago, BHoffman said: From what I gather, the bank can go after the co signer for payment if the borrower defaults, but only the borrower gets a 1099C. Also read that both the co-signer and borrower should of received a 1099-C, was this the case? Quote Link to comment Share on other sites More sharing options...
BHoffman Posted February 26, 2018 Author Report Share Posted February 26, 2018 The 1099C was for $12 k. She is going to contact her son to find out if he also received one. 1 Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted February 26, 2018 Report Share Posted February 26, 2018 The lender is allowed to send 1099-C to all responsible parties. They are under no obligation to change that. (pretty low, if you ask me...) Taxpayers must indicate, on the tax return, that one is not legit. It can be a headache. I usually use Form 982 on the inappropriate return and include the information: "This income included on tax return for XXXXX XXXXX, SS# XXX-XX-XXX. It seems to prevent the inevitable CP2000. 1 Quote Link to comment Share on other sites More sharing options...
jasdlm Posted February 26, 2018 Report Share Posted February 26, 2018 16 hours ago, Pacun said: You don't have to benefit from the debt to be responsible once you signed the loan documents. What the 1099-C reads is that you were responsible for a debt and that the bank forgave that debt because it was easier to let you go vs trying to collect their money. I am surprise the bank didn't go after the co-signer since he/she is solvent and if I were your client, I wouldn't call the bank to re-open the case. You must be insolvent in order to use the 982 shield, so your client most likely is liable for the tax. Read the treasury reg posted by the OP and the actual instructions for filing form 1099-C. It is unlikely that the guarantor is liable for tax on the debt as he did not receive the benefit of the loan. It doesn't matter that he was a guarantor. Agree with Max W, but I would still try to get the 1099 corrected with the lender. Quote Link to comment Share on other sites More sharing options...
jasdlm Posted February 26, 2018 Report Share Posted February 26, 2018 From IRS instructions for form 1099-C, page 5. 7. Guarantor or surety. You are not required to file Form 1099-C for a guarantor or surety. A guarantor is not a debtor for purposes of filing Form 1099-C even if demand for payment is made to the guarantor. https://www.irs.gov/pub/irs-pdf/i1099ac.pdf 1 Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted February 26, 2018 Report Share Posted February 26, 2018 25 minutes ago, jasdlm said: From IRS instructions for form 1099-C, page 5. 7. Guarantor or surety. You are not required to file Form 1099-C for a guarantor or surety. A guarantor is not a debtor for purposes of filing Form 1099-C even if demand for payment is made to the guarantor. https://www.irs.gov/pub/irs-pdf/i1099ac.pdf That is nice, but the 1099-C is submitted to the IRS. If it is not dealt with on the tax form, a CP2000 is sure to appear, as well as assessment for the tax. 1 Quote Link to comment Share on other sites More sharing options...
BHoffman Posted February 26, 2018 Author Report Share Posted February 26, 2018 Does anyone file form 8275 to disclose that the 1099C is not on the tax return and the reason why it isn't (Treas. Reg.)? 1 Quote Link to comment Share on other sites More sharing options...
jasdlm Posted February 26, 2018 Report Share Posted February 26, 2018 57 minutes ago, Jack from Ohio said: That is nice, but the 1099-C is submitted to the IRS. If it is not dealt with on the tax form, a CP2000 is sure to appear, as well as assessment for the tax. I agree, Jack. I was just trying to back-up my reply related to the argument about whether the guarantor was actually liable for the tax. There seems to be disagreement on that front. Quote Link to comment Share on other sites More sharing options...
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