Comments sought on COD reporting


In Notice 2012-65, the IRS asked for public comments on whether it should amend existing Regs. Secs. 1.6050P-1(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. Commenters requested that reporting be required only after a fixed period during which no collection efforts have been made. The result was the 36-month nonpayment testing period.

However, the IRS has determined that, although creditors must file Form 1099-C at the end of the period, it does not mean the debt has necessarily been canceled. This can then cause confusion about whether the recipient of the form must report the amount on the form as COD income.

The IRS is therefore requesting comments on the following issues:

  • Whether Regs. Secs. 1.6050P-1(b)(2)(i) should be amended to remove the nonpayment testing period as an identifiable event.
  • Whether removing the nonpayment testing period would increase or decrease creditors’ and taxpayers’ burden.
  • If the nonpayment testing period is removed, what rules should be added to address continuing collection activity?
  • If the nonpayment testing period is retained, how can it be modified to make it less confusing?


Comments, which must be received by Feb. 11, 2013, can be sent by mail, email, or hand delivery to the addresses listed in the notice.

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