36-month non-payment testing period, Form 1099-C | KPMG | US

36-month non-payment testing period, cancellation of debt on Form 1099-C

36-month non-payment testing period, Form 1099-C

The Treasury Department and IRS today released for publication in the Federal Register final regulations (T.D. 9793) that finalize rules that no longer require Form 1099-C, “Cancellation of Debt,” to be filed at the end of a 36-month non-payment testing period for a deemed discharge of indebtedness.

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Today’s final regulations [PDF 224 KB] finalize rules that were proposed in October 2014 “without significant modification.”

Summary

Regulations under section 6050P have provided a list of identifiable events that give rise to the discharge of indebtedness reporting requirements—one of which has been a 36-month non-payment testing period that triggers an information reporting requirement for a discharge of indebtedness by certain entities (e.g., banks, credit unions, and financial institutions). 

Because there was confusion as to whether the receipt of a Form 1099-C represents cancellation of debt that must be included in gross income, regulations were proposed in 2014 to remove the 36-month non-payment testing period as an identifiable event. The proposed regulations generally provided that information reporting under section 6050P generally is to coincide with the actual discharge of a debt. 

To clarify the situation, the regulations remove the 36-month rule. The change is effective for Forms 1099-C required to be filed with the IRS and furnished to debtors after December 31, 2016.  Thus, the elimination of the 36-month rule is immediately effective and applies to Forms 1099-C for calendar year 2016 reporting (required to be filed in 2017). 

 

For more information, contact a tax professional with KPMG's Washington National Tax:

Steve Friedman | +1 (202) 533-4110 | smfriedman@kpmg.com

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