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IRS wants Form 1099-C on home debt forgiveness
WASHINGTON (1/22/08)—-The Internal Revenue Service (IRS) says lenders should continue to file Form 1099-C on all debt forgiven, even on those amounts no longer subject to taxation because of the passage of the Mortgage Forgiveness Debt Relief Act of 2007. This new development is contrary to what CUNA reported to credit unions in December. That’s when President George W. Bush signed the bill that provides temporary tax relief to homeowners who lose their home to foreclosure or who negotiate a loan modification. “IRS says to still file the 2007 form, due to the debtor by Jan. 31, 2008 and to the IRS by the end of February, on debt modification or forgiveness involving the person’s principal residence,” reports Kathy Thompson, CUNA’s senior vice president of compliance. “It will be up to the taxpayer to straighten out with the IRS what is taxable and what’s not.” Since the bill was passed so late in the year, the IRS won’t have time to change its 1099-C form to include a box similar to the one to check regarding debt discharged in bankruptcy or provide explanatory information for the debtor about the mortgage relief act, said Thompson. “Revising the 1099-C form is impossible at this point, but the IRS still wants the information,” she added. “What this means is, unfortunately, a taxpayer due relief under the 2007 mortgage debt forgiveness law will have the IRS electronic tax system record the 1099-C information as taxes due and will undoubtedly get a few computer-generated dunning notices--probably involving a hefty dollar figure--before getting a real person at IRS, perhaps with the help of a lawyer, to straighten this out,” says Thompson. “But the credit union’s only responsibility continues to be to comply with the IRS reporting rules and get all 1099-C ‘Cancellation of Debt’ forms–-including those involving home mortgage loans--filed with the IRS on time,” she reminded.


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