IRS Acts on AICPA Recommendation on Cancellation of Debt Reporting

November 20, 2014

The Internal Revenue Service (IRS) has acted to eliminate the 36-month rule from the list of “identifiable events” under Internal Revenue Code section 6050P that triggers an information reporting requirement for a discharge of indebtedness. The move was recommended by the American Institute of CPAs (AICPA), which cited confusion surrounding the rule.

“We’re happy that the IRS agreed that the 36-month rule should be eliminated,” Amy Wang, CPA, AICPA technical manager, said after the IRS released the proposal. 

The AICPA submitted a comment letter to the IRS in April 2013 noting that confusion and misreporting occur because the 36-month nonpayment 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 eliminate the 36-month testing period and amend the applicable regulations so that a Form 1099-C is issued only for the year that a debt is legally discharged. 

For more information, see the October 14 Journal of Accountancy article.