# Tax considerations: 1099-C When you forgive a debt over a threshold, the IRS may require you to issue a **Form 1099-C, Cancellation of Debt**, to the debtor. The forgiven amount becomes taxable income to the debtor (with exceptions) and a corresponding event on your side. This page is general information for your tax team. Talk to your tax accountant about specifics — 1099-C is one of the most-litigated information reporting forms and edge cases are common. > **What ai-collect provides today:** we do **not** generate 1099-C data or a 1099-C worksheet. There is no `Reports → Tax → 1099-C` surface in the dashboard, no API endpoint, and no export kind that produces forgiveness amounts in the shape a tax preparer needs. 1099-C generation is **planned but not yet available.** > > Until that ships, your tax preparer assembles 1099-C data from the placement detail and the audit trail. The data we do hold per placement — original `invoice_amount`, cumulative `recovered_amount`, terminal status, `resolved_at`, and the full audit timeline — is enough for a preparer to compute a forgiveness figure, but the workflow is manual. ai-collect does not issue 1099-Cs on your behalf. That's the creditor's responsibility, not the collector's. (Separately, Stripe issues **1099-K** to you for the payouts it makes through your Connect account — that's a different form and a different reporting flow.) ## When 1099-C is required The IRS requires a 1099-C when: * A creditor is one of the entities required to file (most businesses are). * A "**reportable event**" has occurred (most commonly: debt discharge of $600 or more). * A 36-month testing period of non-payment activity has elapsed (often relevant when you write off without an event). If you forgive $600 or more, expect to file. Always confirm with your tax accountant. ## Who counts as a debtor for 1099-C purposes * Individual (e.g., sole proprietor) → you file a 1099-C with their SSN. * Corporation → you generally do **not** file a 1099-C; reporting requirements differ for corporate debtors. * Partnership or LLC → depends on entity classification. We do not currently capture or surface a confirmed entity-type field for debtors that you can rely on for 1099-C filing — verify entity classification independently before filing. ## What you'd typically assemble (manually, for now) For each placement that might trigger 1099-C, your preparer typically wants: * Original principal (placement `invoice_amount`). * Amount actually recovered (placement `recovered_amount`, or the sum of paired Remittance rows). * Forgiven amount (principal − recovered, assuming the balance is being written off). * Closure date (`resolved_at`). * The audit trail (for substantiation). Today this is per-placement assembly. A bulk worksheet that emits a year's worth of candidate forgiveness rows is on the roadmap. ## Reportable events The IRS lists eight reportable-event codes for 1099-C. The most common in commercial collections: * **Code A** — Bankruptcy. * **Code F** — Agreement (you and the debtor reached a settlement that includes forgiveness). * **Code G** — Decision or policy to discontinue collection. * **Code H** — Expiration of nonpayment testing period (the 36-month rule). We do not auto-assign a code today. Your preparer picks the code that matches the closure circumstance. ## Common situations | Situation | Likely 1099-C? | | --------------------------------------------------------------------- | ------------------------------------------ | | Settled for less than full balance; balance forgiven; > $600 forgiven | Yes (Code F) | | Debtor paid in full | No | | Debt written off; no forgiveness event; 36 months of no payments | Yes (Code H) | | Debt written off after bankruptcy | Yes (Code A) | | Debt closed because debtor disputed and we couldn't verify | Discuss with accountant — depends on facts | | Corporate debtor (not sole prop) | Generally no, but confirm | ## Filing mechanics * Due to the IRS by January 31 (paper) or March 31 (electronic) for the prior tax year. * Due to the debtor by January 31. * Filed electronically through the IRS FIRE system if you file 10 or more 1099s in a year. Tax preparers and accounting platforms typically handle this end-to-end. ## State considerations A few states have their own 1099-C-equivalent requirements layered on top of federal. Check with your tax preparer for state-specific filings. ## Edge case: bankruptcy If the debtor's debt is discharged in bankruptcy, generally a 1099-C with Code A is filed. The discharged amount is taxable income to the debtor by default — unless an exclusion applies (the most common is bankruptcy itself, which can exclude discharge income from the debtor's tax return via Form 982). Mention this to the debtor only with disclaimers; you're not their tax adviser. ## TODO * Build a `Reports → Tax → 1099-C worksheet` export (currently planned, not built). * Surface a verified entity-type field on the debtor record. * Screenshot once the worksheet ships. *** Last reviewed: 2026-05-12 by Finance Lead. **TODO: tax accountant review.** --- # Agent Instructions: Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter: ``` GET https://help.moderncollections.io/for-creditor-partners/creditor-finance/tax-considerations-1099-c.md?ask= ``` The question should be specific, self-contained, and written in natural language. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. 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