IRS Form 1099’s—What are these forms?

    For better or worse, our tax system relies upon the accurate and timely reporting of taxable events. The IRS has promulgated over two dozen forms that require someone to report something at sometime, like interest earned, or the sale of real estate, or the distribution from a retirement plan. Many of these forms bear the number 1099, a number so ubiquitous that it has become a verb, e.g., "I'll 1099 you!"

    Cancellation of debt is recognized as income under our tax code, so it is a taxable event for which there is a reporting requirement using IRS Form 1099-C. I might say that it all starts here, but a taxpayer is required to report cancellation of debt income even if a Form 1099-C isn't issued.

    Here we go. Contact me with questions or comments.

  • ●  2015 IRS Form 1099-A
         Acquisition or Abondonment of Secured Property

  • 2015 IRS Form 1099-A
    IRS Publication 527.
    Residential Rental Property (Including Rental of Vacation Homes)

    Revised January 30, 2014

    The disposition of property is a taxable event, and this form reports to the IRS the transaction details in the event of abandonment and foreclosure of real estate, generally. Homeowners report the sale of their home on IRS Schedule D (subject to capital gains exclusion discussed elsewhere), and for investors, this should trigger the use of IRS Form 4797, Sale of Business Property (also discussed elsewhere). The sale could create a loss or gain. Even if the home is lost to foreclosure, the IRS considers this to be an "involuntary conversion," which is the "sale" of property. Same for abandonment. Remember: a sale is a sale is a sale.

    This form is prepared by one called the "Lender," the secured party who ostensibly has an interest in the secured property, e.g., your home, and may not be the original lender from whom you initially borrowed the money. "Borrower," well, is/are the borrower(s). Borrowers are often perplexed about the company which claims to be the "Lender," because of the assignment and securitization of notes and mortgages. The MERS ("Mortgage Electronic Registration System") debacle is problematic, too, in determining exactly who is the Lender, because source documents are not recorded nowadays at the county courthouse.

    By the way, I challenge anyone to have a meaningful conversation with the Lender by using the telephone number provided in the form. Write to the Lender at the given address, and waste a stamp. You'll never hear back from them.

    The Borrower is one or more persons who owe the Lender and who gave the security interest, e.g., a mortgage. What's a concern about the Borrower's address is that, in the case of foreclosures and other involuntary conversions, the Lender will use the last known address of the Borrower, which is usually the property being disposed of. So, unless the Borrower has the USPO forwarding the mail, you'll never get your copy. But, the IRS surely will! This creates frustrating dynamics.

    Box 1 reports to the IRS the date when the property was acquired if abandoned, or the date when the sale was confirmed in a foreclosure action, or the date when the trustee transferred the property in states where there are non-judicial foreclosures.

    Box 2 should set forth only the principal balance of the loan as of the date of the knowledge of abandonment, or confirmation of the sale. It should not include interest, court costs, fees, taxes or other liquidation expenses.

    Box 4 should report the fair market value of the property at the time of its disposition. In the case of an abandonment, you would need an appraisal, or you would be picking a value from thin air. For foreclosures, the highest bid price (the auction winner) is considered fmv, although I would argue that this is certainly is not fvm as this kind of sale is a forced sale, and the buyer purchases at a deep discount because of the unknowable condition of the property. The reported valuation, however, could create certain tax opportunites (discussed elsewhere). Trustees have different duties in different states. Sometimes, no one has the slightest idea of what is fmv, e.g., a "deed-in-lieu" situation," and the "solution" is to leave this box blank, or not prepare Form 1099-A as required, which leads to even more problems.

    Box 5 is interesting. If the debt is truly "non-recourse" (its definition discussed elsewhere), then this box would not be checked. But in almost all other cases, it should be checked. If the box isn't checked, this does not necessarily mean that the debt is forgiven. Canceled debt is reported on Form 1099-C, and not on this form. So in a foreclosure, if the identified Lender really intends to forgive the debt, you should get a Form 1099-A AND a Form 1099-C.

    Box 6 should describe the property with an address, or book/plat/parcel number.

  • ●  2015 IRS Form 1099-C: Cancellation of Debt

  • 2015 IRS Form 1099-C-->

    For 80 years, the United States has considered the cancellation of debt to be taxable as gross income. (The history of the taxation of COD income is discussed elsewhere.) The point of this form is to notify the IRS that a taxable event has occurred, to wit, the cancellation of debt owed by the "Debtor." The amount of canceled debt is considered "Other Income" that needs to be reported on line 21 of IRS Form 1040 of the Debtor's tax return, unless there is an exemption that is reported and substantiated using IRS Form 982, "Reduction of Tax Attributes" (the gory details of which are delved into elsewhere).

    This form is prepared by one called the "Creditor," the person to whom money is owed. The "Debtor" is one or more persons who owes upon the debt, often referred to as "Obligors" or "Co-obligors" in the case of two or more, but not necessarily "Guarantors" (discussed elsewhere). As with the Lender in Form 1099-A, Debtors are often perplexed about the company which claims to be the Creditor. Debt could be sold to third parties, or is serviced by other than the actual creditor, or banks merge or are taken over by the FDIC. I challenge anyone to contact the Creditor for a meaningful conversation using the telephone number provided. Use the address if you wish to write the Creditor. Good luck getting any response.

    As with Form 1099-A, the Debtor will never get a copy of this form if the Creditor mails it to a last known address where the Debtor no longer resides (and the USPO isn't forwarding the mail elsewhere).

    Box 1 reports to the IRS the date when the debt was "canceled." (Note: in America, "canceled" has only one "l", but in Britian, it has two.) Unless there is a closing on a date certain as with a short sale of real estate, the Debtor has absolutely no control over this date. Often, the Creditor has no idea why this date was picked, either.

    The Creditor determines what to report in Box 2 as the amount of debt canceled. Often it is an amount that defies calculation. If the amount of canceled debt includes interest, then the amount of interest is reported in Box 3. So . . . you should be able to determine the amount of just principal by subtracting Box 3 from Box 2, assuming, perhaps naïvely, that no other fees or charges are included in the amount reported in Box 2 (which is hard to determine unless you have all of the source documents). This is really important if the interest is deductible, because it is axiomatic that an amount that is otherwise deductible is NOT canceled debt (discussed elsewhere).

    The description in Box 4 should be the account number. Should be simple, right?

    Box 5 is is checked unless the debt is truly "non-recourse" (discussed elsewhere), and in that case, this box would not be checked. But I would not be jumping up and down quite yet if the box is missing an "X", as this is not necessarily a panacea for the taxpayer.

    Box 6 is checked if the Debtor filed for bankruptcy. This does not necessarily mean that the debt is discharged in bankruptcy, or that the Debtor is somehow relieved of the duty to report canceled debt income.

    If property is involved, its fair market value at the time the debt is canceled is reported in Box 7. The Creditor determines fmv, although in many instances, the amount reported defies credulity.

  • ●  2015 IRS Form 1099-S
         Proceeds from Real Estate Transactions

  • 2015 IRS Form 1099-S-->

    The disposition of property is a taxable event, and this form reports to the IRS the details of the transaction. With a short sale, the homeowner reports the sale of the home on IRS Schedule D (subject to capital gains exclusion, discussed elsewhere), and for investors, this triggers the use of IRS Form 4797, Sale of Business Property (discussed at length elsewhere). It could create a loss or gain. For involuntary conversions, use Form 1099-A, discussed above.

    This form is prepared by the Filer, who is the party obtaining the property or the closing agent. The Transferor is one who owned the property that is being transferred. Often referred to as the "Seller." "Transferee" is just another word for "Buyer."

    Box 1 should be simple. The date of the closing is the date of the closing. Check your HUD-1 statement.

    Box 2 reports to the IRS the amount paid for the property by the Buyer.

    Box 3 is the property's street address.

    Box 4 reports "like-kind exchanges," where all or part of the consideration paid is other than money. "Like-kind exchanges" are beyond the scope of this web site. Look, I cannot possibly deal with everything! Go Google it.

    Box 5 reports the amount of real estate tax attributed to the Buyer, for which he gets a deduction, maybe.

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Links & Resource Materials

1099advisor on the Radio

David Stonehill has been a frequent guest on radio talk shows.

Click on the link below, and theYahoo! Media Player will magically appear!

WMKV-FM radio show,
       February 1, 2012 (about 1 hour)

WMKV-FM radio show,
       August 10, 2011 (about 1 hour)

These are Dave's recent appearances on Lewis Gatch's "Everybody's Planning Hour" radio show. Dave talks about what creates cancellation of debt income, why it's taxed, and how to avoid paying too much tax on it.

United States Tax Code

26 U.S.C. § 62. Gross income defined

26 U.S.C. § 121. Exclusion of gain from sale of principal residence

26 U.S.C. § 108. Income from discharge of indebtedness

26 U.S.C. § 1017. Discharge of idebtedness

26 U.S.C. § 1221. Capital asset defined

26 U.S.C. § 1231. Property used in the trade or business ad involuntary conversions

26 U.S.C. § 1245. Gain from disposition of certain depreciable property

From Dante's Inferno. Wise words to contemplate. My former tax partner had these words framed on his credenza. Perhaps this is how you feel after perusing these IRS publications. Well, contact me and I'll cut through this haze.

IRS Form 1099's: Reporting Forms on Parade

     Here's my list of all the Form 1099's that I'm aware of.

  • 1099-A: acquisition or Abandonment of Secured Property
  • 1099-B: Proceeds from Broker and Barter Exchange Transactions
  • 1099-C: Cancellation of Debt
  • 1099-CAP: Changes in Corporate Control and Capital Structure
  • 1099-DIV: Dividends and Distributions
  • 1099-G: Government Payments
  • 1099-H: Health Insurance Advance Payments
  • 1099-INT: Interest Income
  • 1099-K: Merchant Card and Third Party Network Payments
  • 1099-LTC: Long Term Care Benefits
  • 1099-MISC: Miscellaneous Income
  • 1099-OID: Original Issue Discount
  • 1099-PATR: Taxable Distributions Received From Cooperatives
  • 1099-Q: Payment from Qualified Education Programs
  • 1099-R: Distributions from Pensions, Annuities, Retirement Plans, IRAs, or Insurance Contracts
  • 1099-S: Proceeds from Real Estate Transactions
  • 1099-SA: Distributions From an HSA, Archer MSA, or Medicare Advantage MSA
  • 1042-S: Foreign Person's U.S. Source Income
  • SSA-1099: Social Security Benefit Statement
  • SSA-1042S: Social Security Benefit Statement to Nonresident Aliens
  • RRB-1099: Payments by the Railroad Retirement Board
  • RRB-1099R: Pension and Annuity Income by the Railroad Retirement Board
  • RRB-1042S: Payments by the Railroad Retirement Board to Nonresident Aliens
  • W-2G: Certain Gambling Winnings

Clicking here will open a new window to the official IRS web site's landing page for a "Guide to Information Returns."

Where do you go from here?

Home:  This web site's landing page.

Canceled Debt:  What is COD income?

Typical Situaitons:  Examples of COD income.

Exclusions:  How to exclude COD income.

Contact Us:  4 ways to contact me … right now!

Common problems with Form 1099's

Oh, ... there's so much more:
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