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1099-C Discharge of Liability

Published Wednesday, June 16, 2010 7:00 am

Upon receiving a form 1099-C Discharge of Liability in the mail, an individual may believe that the debt owed has been discharged by the creditor and is no longer owed. When a creditor chooses to discharge a debt, they must report this information to the debtor and the IRS by filing a 1099-C form. The debtor, in turn, is required to report the discharged debt as gross income. 26 U.S.C. 61(a) (12).

When a creditor files a Form 1099-C it merely creates a prima facie showing that the debt liability is discharged. This presumption can be rebutted if a creditor can show that the intent in issuing a 1099-C Form was for any reason other than to discharge the debt liability. The presumption can be rebutted if a creditor can show that the Form 1099-C was filed only with the intent to comply with 26 C.F.R. 1.6050P-1, which outlines eight events that trigger the requirement to file a 1099-C form, and not for the purpose of discharging a debt liability. Merely receiving a Form 1099-C does not itself legally discharge a debtor from the debt liability. Leonard v. Old National Bank Corp., 837 N.E. 2d 543, 545-546 (Ind. Ct. App. 2005).

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