Academic journal article Journal of Accountancy

Comments Sought on COD Reporting

Academic journal article Journal of Accountancy

Comments Sought on COD Reporting

Article excerpt

In Notice 2012-65, the IRS asked for public comments on whether it should amend existing Regs. Sees. 1.6050P1 (b)(2)(i)(H) and (iv), which require applicable financial entities to issue Forms 1099-C reporting cancellation of debt (COD) income when a 36-month nonpayment testing period has expired.

Under Sec. 6050P and its regulations, COD income of $600 or more must be reported on Form 1099-C, Cancellation of Debt, when any of eight identifiable events occur. Seven of these events are specific instances that actually result in a discharge of debt, such as an agreement between the creditor and debtor. The eighth, the expiration of the nonpayment testing period, does not actually result from a discharge and may be difficult to determine. It may also be confusing to debtors who receive these forms and do not know whether to report the amount in income.

The nonpayment testing period is a 36-month period during which a creditor has not received any payment from the debtor, which creates a presumption that the loan was discharged, thus triggering the Form 1099-C filing requirement. The creditor can rebut this presumption by showing significant, bona fide collection activity or other facts and circumstances that indicate the debt has not been discharged.

The nonpayment testing period was added to the regulations in 1996 in response to creditors' concerns that the prior facts-and-circumstances test for determining when an identifiable event had occurred was not sufficiently clear to allow them to determine when reporting was required. …

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