AICPA Asks IRS for Clearer Cancellation of Debt Information Reporting Rules

April 30, 2013

The American Institute of CPAs (AICPA) submitted comments to the Internal Revenue Service (IRS) on April 1, 2013 regarding proposed guidance governing how to report the cancellation of debt.

“We support the Internal Revenue Service’s efforts to address issues surrounding Form 1099-C, Cancellation of Debt,” Jeffrey A. Porter, CPA, chair of the AICPA Tax Executive Committee, said in the letter to the IRS.  “We strongly believe changes are needed to the filing requirements for Form 1099-C.  Specifically, we suggest that IRS require lenders to issue Form 1099-C only upon the legal discharge of a debt, which will occur at the earlier of the expiration of the applicable statute of limitations or when all collection efforts by the lender or surrogate collection organizations have ceased.”

The AICPA letter noted that confusion and misreporting occur because the 36-month non-payment testing period can result in a Form 1099-C being issued several years after the debt is legally discharged.  The AICPA recommended that the IRS amend the applicable regulations so that a Form 1099-C is issued only for the year that a debt is legally discharged, which would solve the timing problem created by the 36-month testing period.

The AICPA also encouraged the IRS to collaborate with other government agencies involved with credit card and other debts to ensure that the rules for legal discharge of debt are applied so that borrowers do not receive a Form 1099-C if the lender or 3rd party purchaser of the debt intends to continue collection efforts.