If a loan is made and the resulting indebtedness is later forgiven or otherwise canceled, the amount forgiven is generally includible in the income of the borrower under Internal Revenue Code (“Code”) section 61(a)(12) as income from the discharge of indebtedness (“cancellation of debt” or “COD” income).
In order to encourage taxpayer compliance with respect to discharged indebtedness, section 6050P was added to the Code in 1993 to require that, when an “applicable entity” discharges a debt in whole or in part and the amount discharged is at least $600, the applicable entity must file an information return (Form 1099-C) setting forth information including the name and taxpayer identification number of the debtor, the date of the debt discharge, and the amount of the debt discharged.1 Two recent cases underscore the confusion and difficulty that can arise from this requirement, and discuss whether the debtor has any potential remedies in a situation where an information return relating to an alleged discharge of debt is issued with false information or is issued by a holder of indebtedness not required to issue such information returns.
