Definition
IRS Form 1099-C reporting cancellation of debt, issued by creditors when debt is forgiven, triggering obligation to report COD income on tax returns.
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When a creditor cancels debt of $600 or more, they must issue Form 1099-C to the borrower and IRS. The form reports the debt amount forgiven, the date of forgiveness, and other details. Receiving Form 1099-C doesn't automatically mean you owe tax—you still have available exceptions (insolvency, mortgage forgiveness, student loan discharge). However, receiving the form means the IRS knows about the forgiveness, and you must report it or claim applicable exceptions on your tax return. Not reporting Form 1099-C income when no exception applies triggers audit risk and potential penalties. If you receive Form 1099-C and claim an exception (like insolvency), you must file Form 982 (insolvency exclusion) with your tax return. Understanding Form 1099-C is important for anyone facing debt forgiveness or settlement. Many people receive Forms 1099-C and don't know how to handle them, creating tax problems.
Pro Tip
If you receive Form 1099-C, don't ignore it. File Form 982 claiming applicable exceptions, or your income tax will increase by the forgiven amount.
Example
A mortgage servicer forgives $30,000 of principal in a loan modification. You receive Form 1099-C reporting $30,000 cancellation. You file Form 982 claiming mortgage forgiveness exception, excluding it from income.