How to Issue a 1099-C for Cancellation of Debt

To issue a Form 1099-C for cancellation of debt, confirm you’re a required filer, pick the identifiable event code that matches why the debt was discharged, enter the debtor’s information and the canceled amount on the form, send Copy B to the debtor by January 31, and file Copy A with the IRS by February 28 on paper or March 31 electronically. The reporting threshold is $600 of canceled debt on a single obligation, and the form exists so the IRS can match the discharged amount against the debtor’s return.

Confirm You Actually Have to File

Three things have to line up before a 1099-C is required: you’re an “applicable entity,” you canceled $600 or more on a single debt, and an identifiable event has occurred.¹

Applicable entities are banks, credit unions, savings institutions, federal government agencies, and any organization with a significant trade or business of lending money. Finance companies and private lenders that regularly originate or acquire loans fall into that last bucket.²

A business whose principal activity is selling goods or services, and which extends credit to customers as part of those sales, is not treated as being in the lending business just because of that credit. A retailer writing off an unpaid customer account generally has no 1099-C obligation. A separate financing subsidiary extending the credit is a different story and may have to file.²

The $600 is the amount actually canceled on one obligation, not the original balance. Forgive $500 on a $10,000 note and no 1099-C is required. You can’t aggregate separate canceled debts from the same debtor to reach $600 unless they were split specifically to avoid reporting.¹

Pick the Identifiable Event Code

A cancellation by itself doesn’t trigger reporting. One of eight identifiable events must have occurred, and the letter code for that event goes in Box 6. The date of the event sets the tax year of the cancellation, so record it when it happens rather than reconstructing it later.³

Code A: discharge in a Title 11 bankruptcy case.
Code B: a receivership, foreclosure, or similar court proceeding extinguished the debt.
Code C: the statute of limitations or the deficiency collection period expired.
Code D: the creditor elected foreclosure remedies that discharged the debt.
Code E: a probate court or equivalent proceeding canceled the debt.
Code F: the creditor and debtor agreed to cancel all or part of the debt.
Code G: the creditor made a decision or applied a policy to discontinue collection.
Code H: an actual discharge occurred before any of the events in A through G.

Getting the code right matters. The wrong letter can generate IRS correspondence for both sides and make it harder for the debtor to claim an exclusion they’re entitled to.

Gather Your Information Before You Start

Pull everything together before opening the form. On your side: legal entity name, address, telephone number, and TIN (usually your EIN). On the debtor’s side: full legal name, current mailing address, and TIN, which will be a Social Security Number for an individual or an EIN for a business.

A missing or incorrect debtor TIN is the most common reason filers end up with a B-Notice from the IRS. To avoid penalties, request the TIN when the account opens, and if you still don’t have it, make up to two follow-up solicitations by the deadlines the IRS sets (generally December 31 of the year the account opened and December 31 of the following year). A mailed solicitation needs to include a Form W-9, a notice warning the debtor of a possible $50 penalty for not providing a TIN, and a return envelope.⁴

Also have at hand the date of the identifiable event, the total amount discharged, any interest included in that amount, a short description of the debt, and whether the debtor was personally liable when the debt was created.

Fill Out the Form Box by Box

The creditor section at the top takes your name, address, phone, and TIN. The recipient section takes the debtor’s name, address, and TIN. The numbered boxes cover the cancellation itself.³

Box 1, date of identifiable event. Enter the date the triggering event occurred. If you canceled the debt before any formal event and are reporting that earlier cancellation, enter the actual cancellation date.

Box 2, amount of debt discharged. Enter the forgiven principal plus any accrued but unpaid interest included. This is the figure the IRS matches against the debtor’s return.

Box 3, interest included in Box 2. Break out the unpaid interest piece. The debtor needs this to figure out how much of the cancellation is actually taxable, since forgiven interest that wouldn’t have been deductible generally isn’t treated as income.

Box 4, debt description. A short label such as “Credit Card,” “Auto Loan,” or “Mortgage.” If Box 7 is used because of a foreclosure, describe the property here too.

Box 5, personal liability checkbox. Check this if the debtor was personally liable for the debt when it was created or at the last modification.

Box 6, identifiable event code. Enter the single letter (A through H) that matches the discharge.

Box 7, fair market value of property. Fill this in only when a foreclosure or abandonment of secured property happened in the same calendar year as the cancellation. The entry is usually the gross foreclosure bid price.

Foreclosure Overlap

When a $600-plus cancellation happens in the same calendar year as a foreclosure or abandonment of secured property, you have a choice. File only the 1099-C with Boxes 4, 5, and 7 completed, or file both the 1099-A and 1099-C and leave Boxes 4, 5, and 7 blank on the 1099-C to avoid duplicating data. If the foreclosure and the cancellation fall in different years, file each form in the year its event occurred.⁵

Multiple Debtors on the Same Debt

For debts of $10,000 or more incurred after 1994 where the debtors are jointly and severally liable, file a separate 1099-C for each debtor reporting the full canceled amount. Joint and several liability is presumed unless you have clear and convincing evidence otherwise. Below $10,000, or for debts incurred before 1995, you only need to file for the primary or first-named debtor.⁵

Spousal exception: if you know or have reason to believe the debtors were married and living at the same address when the debt was incurred, and nothing suggests that’s changed, you can file a single 1099-C. You also don’t need to file one when you release a single debtor from a joint obligation as long as the remaining debtors are still liable for the full amount.⁵

Bankruptcy Carve-Out

Discharges in Title 11 bankruptcy generally don’t require a 1099-C unless your records show the debt was incurred for business or investment purposes. Consumer debts discharged in bankruptcy, including credit cards, medical bills, and personal loans, usually aren’t reported.²

When a bankruptcy-related debt does require reporting, use the later of two dates: the year the discharged amount can first be determined, or the year the court actually discharged the debt.²

Deliver Copy B and File Copy A

Copy B goes to the debtor by January 31 of the year after the cancellation. Keep Copy C for your records. For 1099-C specifically, the IRS wants you to retain copies or be able to reconstruct the data for at least four years from the due date, longer than the standard three-year retention for most information returns.⁶

Copy A goes to the IRS by February 28 on paper or March 31 electronically. Paper filers include Form 1096 as a transmittal summary of the batch.¹

Watch the e-filing threshold. If you file 10 or more information returns of any kind during the year, electronic filing is mandatory. The count combines everything you file: W-2s, 1099-NECs, 1099-INTs, 1099-Cs, all of it. The IRS FIRE system requires formatting software; the IRIS portal doesn’t.⁷

Fixing an Error After You’ve Filed

If you find an error after filing (wrong amount, wrong debtor TIN, wrong event code), file a corrected return. Use the same 1099-C, check the “CORRECTED” box at the top, and submit it with the right information. Paper corrections go to the IRS with a new Form 1096. Electronic corrections go through the same system as the original filing. Send a corrected Copy B to the debtor as well so they can amend their return if needed.

Take debtor disputes seriously. Verify the figure against your records and correct it if warranted. If the creditor refuses to correct a form the debtor disputes, the IRS expects the debtor to report the amount shown and attach an explanation of the disagreement to their return.⁸

Penalties for Late or Wrong Filings

Per-return penalties scale by how late you are. For returns due in 2026:⁹

Up to 30 days late: $60 per return.
31 days late through August 1: $130 per return.
After August 1 or never filed: $340 per return.
Intentional disregard: $680 per return with no annual cap.

Separate penalties apply for failing to furnish a correct Copy B to the debtor on time, at the same dollar tiers. Annual caps exist and are lower for small businesses with average annual gross receipts of $5 million or less. Intentional disregard has no cap at all. A handful of missed or wrong 1099-Cs can generate thousands in penalties, which is why most issuers build the filing into their year-end workflow rather than treating it as ad hoc.⁹

What the Debtor Does With It

The debtor doesn’t automatically owe tax on the full amount. Several exclusions are available on Form 982, including discharges in bankruptcy, cancellations while insolvent, qualified principal residence indebtedness discharged before 2026, and qualified farm debt.¹⁰

Your job is accurate reporting. Whether the debtor ends up owing tax is between them and the IRS. A wrong Box 2 amount or a wrong Box 6 code, though, makes it harder for the debtor to claim an exclusion they’re entitled to, and that’s usually what generates the disputes that come back to you.

1
Internal Revenue Service. About Form 1099-C, Cancellation of Debt
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Internal Revenue Service. Instructions for Forms 1099-A and 1099-C
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Internal Revenue Service. Form 1099-C, Cancellation of Debt
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Internal Revenue Service. Information Return Penalties
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Internal Revenue Service. Instructions for Forms 1099-A and 1099-C
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Internal Revenue Service. General Instructions for Certain Information Returns
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Internal Revenue Service. General Instructions for Certain Information Returns
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Taxpayer Advocate Service. I Have a Cancellation of Debt or Form 1099-C
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Internal Revenue Service. Information Return Penalties
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Internal Revenue Service. Instructions for Form 982