[Code of Federal Regulations]
[Title 26, Volume 13]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR]

[Page 378-382]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
Procedure and Administration--Table of Contents
 
Sec.  1.6050P-1  Information reporting for discharges of indebtedness 
by certain financial entities.

    (a) Reporting requirement--(1) In general. Except as provided in 
paragraph (d) of this section, any applicable financial entity (as 
defined in section 6050P(c)(1)) that discharges an indebtedness of any 
person (within the meaning of section 7701(a)(1)) of at least $600 
during a calendar year must file an information return on Form 1099-C 
with the Internal Revenue Service. Solely for purposes of the reporting 
requirements of section 6050P and this section, a discharge of 
indebtedness is deemed to have occurred, except as provided in paragraph 
(b)(3) of this section, if and only if there has occurred an 
identifiable event described in paragraph (b)(2) of this section, 
whether or not an actual discharge of indebtedness has occurred on or 
before the date on which the identifiable event has occurred. The return 
must include the following information--
    (i) The name, address, and taxpayer identification number (TIN), as 
defined in section 7701(a)(41), of each person for which there was an 
identifiable event during the calendar year;
    (ii) The date on which the identifiable event occurred, as described 
in paragraph (b) of this section;
    (iii) The amount of indebtedness discharged, as described in 
paragraph (c) of this section;
    (iv) An indication whether the identifiable event was a discharge of 
indebtedness in a bankruptcy, if known; and
    (v) Any other information required by Form 1099-C or its 
instructions, or current revenue procedures.
    (2) No aggregation. For purposes of reporting under this section, 
multiple discharges of indebtedness of less than $600 are not required 
to be aggregated unless such separate discharges are pursuant to a plan 
to evade the reporting requirements of this section.
    (3) Amounts not includible in income. Except as otherwise provided 
in this section, discharged indebtedness must be reported regardless of 
whether the debtor is subject to tax on the discharged debt under 
sections 61 and 108 or otherwise by applicable law.
    (4) Time and place for reporting-- (i) In general. Except as 
provided in paragraph (a)(4)(ii) of this section, returns required by 
this section must be filed with the Internal Revenue Service office 
designated in the instructions for Form 1099-C on or before February 28 
(March 31 if filed electronically) of the year following the calendar 
year in which the identifiable event occurs.
    (ii) Indebtedness discharged in bankruptcy. Indebtedness discharged 
in bankruptcy that is required to be reported under this section must be 
reported for the later of the calendar year in which the amount of 
discharged indebtedness first becomes ascertainable, or the calendar 
year in which the identifiable event occurs.
    (b) Date of discharge--(1) In general. Solely for purposes of this 
section, except as provided in paragraph (b)(3) of this section, 
indebtedness is discharged on the date of the occurrence of an 
identifiable event specified in paragraph (b)(2) of this section.
    (2) Identifiable events--(i) In general. An identifiable event is--
    (A) A discharge of indebtedness under title 11 of the United States 
Code (bankruptcy);
    (B) A cancellation or extinguishment of an indebtedness that renders 
a debt unenforceable in a receivership, foreclosure, or similar 
proceeding in a federal or State court, as described in section 
368(a)(3)(A)(ii) (other than a discharge described in paragraph 
(b)(2)(i)(A) of this section);
    (C) A cancellation or extinguishment of an indebtedness upon the 
expiration of the statute of limitations for collection of an 
indebtedness, subject to the limitations described in paragraph 
(b)(2)(ii) of this section, or upon the expiration of a statutory period 
for filing a claim or commencing a deficiency judgment proceeding;
    (D) A cancellation or extinguishment of an indebtedness pursuant to 
an election of foreclosure remedies by a creditor that statutorily 
extinguishes or bars the creditor's right to pursue collection of the 
indebtedness;
    (E) A cancellation or extinguishment of an indebtedness that renders 
a debt

[[Page 379]]

unenforceable pursuant to a probate or similar proceeding;
    (F) A discharge of indebtedness pursuant to an agreement between an 
applicable financial entity and a debtor to discharge indebtedness at 
less than full consideration;
    (G) A discharge of indebtedness pursuant to a decision by the 
creditor, or the application of a defined policy of the creditor, to 
discontinue collection activity and discharge debt; or
    (H) The expiration of the non-payment testing period, as described 
in paragraph (b)(2)(iv) of this section.
    (ii) Statute of limitations. In the case of an expiration of the 
statute of limitations for collection of an indebtedness, an 
identifiable event occurs under paragraph (b)(2)(i)(C) of this section 
only if, and at such time as, a debtor's affirmative statute of 
limitations defense is upheld in a final judgment or decision of a 
judicial proceeding, and the period for appealing the judgment or 
decision has expired.
    (iii) Decision to discontinue collection activity; creditor's 
defined policy. For purposes of the identifiable event described in 
paragraph (b)(2)(i)(G) of this section, a creditor's defined policy 
includes both a written policy of the creditor and the creditor's 
established business practice. Thus, for example, a creditor's 
established practice to discontinue collection activity and abandon 
debts upon expiration of a particular non-payment period is considered a 
defined policy for purposes of paragraph (b)(2)(i)(G) of this section.
    (iv) Expiration of non-payment testing period. There is a rebuttable 
presumption that an identifiable event under paragraph (b)(2)(i)(H) of 
this section has occurred during a calendar year if a creditor has not 
received a payment on an indebtedness at any time during a testing 
period (as defined in this paragraph (b)(2)(iv)) ending at the close of 
the year. The testing period is a 36-month period increased by the 
number of calendar months during all or part of which the creditor was 
precluded from engaging in collection activity by a stay in bankruptcy 
or similar bar under state or local law. The presumption that an 
identifiable event has occurred may be rebutted by the creditor if the 
creditor (or a third-party collection agency on behalf of the creditor) 
has engaged in significant, bona fide collection activity at any time 
during the 12-month period ending at the close of the calendar year, or 
if facts and circumstances existing as of January 31 of the calendar 
year following expiration of the 36-month period indicate that the 
indebtedness has not been discharged. For purposes of this paragraph 
(b)(2)(iv)--
    (A) Significant, bona fide collection activity does not include 
merely nominal or ministerial collection action, such as an automated 
mailing;
    (B) Facts and circumstances indicating that an indebtedness has not 
been discharged include the existence of a lien relating to the 
indebtedness against the debtor (to the extent of the value of the 
security), or the sale or packaging for sale of the indebtedness by the 
creditor; and
    (C) In no event will an identifiable event described in paragraph 
(b)(2)(i)(H) of this section occur prior to December 31, 1997.
    (3) Permitted reporting. If a discharge of indebtedness occurs 
before the date on which an identifiable event occurs, the discharge 
may, at the creditor's discretion, be reported under this section.
    (c) Indebtedness. For purposes of this section, indebtedness means 
any amount owed to an applicable financial entity, including stated 
principal, fees, stated interest, penalties, administrative costs and 
fines. The amount of indebtedness discharged may represent all, or only 
a part, of the total amount owed to the applicable financial entity.
    (d) Exceptions from reporting requirement--(1) Certain bankruptcy 
discharges--(i) In general. Reporting is required under this section in 
the case of a discharge of indebtedness in bankruptcy only if the 
creditor knows from information included in the reporting entity's books 
and records pertaining to the indebtedness that the debt was incurred 
for business or investment purposes as defined in paragraph (d)(1)(ii) 
of this section.
    (ii) Business or investment debt. Indebtedness is considered 
incurred for business purposes if it is incurred in connection with the 
conduct of any trade or business other than the trade

[[Page 380]]

or business of performing services as an employee. Indebtedness is 
considered incurred for investment purposes if it is incurred to 
purchase property held for investment, as defined in section 163(d)(5).
    (2) Interest. The discharge of an amount of indebtedness that is 
interest is not required to be reported under this section.
    (3) Non-principal amounts in lending transactions. In the case of a 
lending transaction, the discharge of an amount other than stated 
principal is not required to be reported under this section. For this 
purpose, a lending transaction is any transaction in which a lender 
loans money to, or makes advances on behalf of, a borrower (including 
revolving credits and lines of credit).
    (4) Indebtedness of foreign debtors held by foreign branches of U.S. 
financial institutions--(i) Reporting requirements. [Reserved]
    (ii) Definition. An indebtedness held by a foreign branch of a U.S. 
financial institution is described in this paragraph (d)(4) only if--
    (A) The financial institution is engaged through a branch or office 
in the active conduct of a banking or similar business outside the 
United States;
    (B) The branch or office is a permanent place of business that is 
regularly maintained, occupied, and used to carry on a banking or 
similar financial business;
    (C) The business is conducted by at least one employee of the branch 
or office who is regularly in attendance at such place of business 
during normal working hours;
    (D) The indebtedness is extended outside of the United States by the 
branch or office in connection with that trade or business; and
    (E) The financial institution does not know or have reason to know 
that the debtor is a United States person.
    (5) Acquisition of indebtedness by related party. No reporting is 
required under this section in the case of a deemed discharge of 
indebtedness under section 108(e)(4) (relating to the acquisition of an 
indebtedness by a person related to the debtor), unless the disposition 
of the indebtedness by the creditor was made with a view to avoiding the 
reporting requirements of this section.
    (6) Releases. The release of a co-obligor is not required to be 
reported under this section if the remaining debtors remain liable for 
the full amount of any unpaid indebtedness.
    (7) Guarantors and sureties. Solely for purposes of the reporting 
requirements of this section, a guarantor is not a debtor. Thus, in the 
case of guaranteed indebtedness, reporting under this section is not 
required with respect to a guarantor, whether or not there has been a 
default and demand for payment made upon the guarantor.
    (e) Additional rules--(1) Multiple debtors--(i) In general. In the 
case of indebtedness of $10,000 or more incurred on or after January 1, 
1995, that involves more than one debtor, a reporting entity is subject 
to the requirements of paragraph (a) of this section for each debtor 
discharged from such indebtedness. In the case of indebtedness incurred 
prior to January 1, 1995, and indebtedness of less than $10,000 incurred 
on or after January 1, 1995, involving multiple debtors, reporting under 
this section is required only with respect to the primary (or first-
named) debtor. Additionally, only one return of information is required 
under this section if the reporting entity knows, or has reason to know, 
that co-obligors were husband and wife living at the same address when 
an indebtedness was incurred, and does not know or have reason to know 
that such circumstances have changed at the date of a discharge of the 
indebtedness. This paragraph (e)(1) applies to discharges of 
indebtedness after December 31, 1994.
    (ii) Amount to be reported. In the case of multiple debtors jointly 
and severally liable on an indebtedness, the amount of discharged 
indebtedness required to be reported under this section with respect to 
each debtor is the total amount of indebtedness discharged. For this 
purpose, multiple debtors are presumed to be jointly and severally 
liable on an indebtedness in the absence of clear and convincing 
evidence to the contrary.
    (2) Multiple creditors--(i) In general. Except as otherwise provided 
in this paragraph (e)(2), if indebtedness is owned (or treated as owned 
for federal

[[Page 381]]

income tax purposes) by more than one creditor, each creditor that is an 
applicable financial entity must comply with the reporting requirements 
of this section with respect to any discharge of indebtedness of $600 or 
more allocable to such creditor. A creditor will be considered to have 
complied with the requirements of this section if a lead bank, fund 
administrator, or other designee of the creditor complies on its behalf 
in any reasonable manner, such as by filing a single return reporting 
the aggregate amount of indebtedness discharged, or by filing a return 
with respect to the portion of the discharged indebtedness allocable to 
the creditor. For purposes of this paragraph (e)(2)(i), any reasonable 
method may be used to determine the portion of discharged indebtedness 
allocable to each creditor.
    (ii) Partnerships. For purposes of paragraph (e)(2)(i) of this 
section, indebtedness owned by a partnership is treated as owned by the 
partners.
    (iii) Pass-through securitized indebtedness arrangement--(A) 
Reporting requirements. [Reserved]
    (B) Definition. For purposes of this paragraph (e)(2)(iii), a pass-
through securitized indebtedness arrangement is any arrangement whereby 
one or more debt obligations are pooled and held for twenty or more 
persons whose interests in the debt obligations are undivided co-
ownership interests that are freely transferrable. Co-ownership 
interests that are actively traded personal property (as defined in 
Sec.  1.1092(d)-1) are presumed to be freely transferrable and held by 
twenty or more persons.
    (iv) REMICs. [Reserved]
    (3) Coordination with reporting under section 6050J. If, in the same 
calendar year, a discharge of indebtedness reportable under section 
6050P occurs in connection with a transaction also reportable under 
section 6050J (relating to foreclosures and abandonments of secured 
property), an applicable financial entity need not file both a Form 
1099-A and a Form 1099-C with respect to the same debtor. The filing 
requirements of section 6050J will be satisfied with respect to a 
borrower if, in lieu of filing Form 1099-A, a Form 1099-C is filed in 
accordance with the instructions for the filing of that form. This 
paragraph (e)(3) applies to discharges of indebtedness after December 
31, 1994.
    (4) Direct or indirect subsidiary. For purposes of section 
6050P(c)(1)(C), the term direct or indirect subsidiary means a 
corporation in a chain of corporations beginning with an entity 
described in section 6050P(c)(1)(A), if at least 50 percent of the total 
combined voting power of all classes of stock entitled to vote, or at 
least 50 percent of the total value of all classes of stock, of such 
corporation is directly owned by the entity described in section 
6050P(c)(1)(A), or by one or more other corporations in the chain.
    (5) Use of magnetic media. Any return required under this section 
must be filed on magnetic media to the extent required by section 
6011(e) and the regulations thereunder. A failure to file on magnetic 
media when required constitutes a failure to file an information return 
under section 6721. Any person not required by section 6011(e) to file 
returns on magnetic media may request permission to do so under 
applicable regulations and revenue procedures.
    (6) TIN solicitation requirement--(i) In general. For purposes of 
reporting under this section, a reasonable effort must be made to obtain 
the correct name/taxpayer identification number (TIN) combination of a 
person whose indebtedness is discharged. A TIN obtained at the time an 
indebtedness is incurred satisfies the requirement of this section, 
unless the entity required to file knows that such TIN is incorrect. If 
the TIN is not obtained prior to the occurrence of an identifiable 
event, it must be requested of the debtor for purposes of satisfying the 
requirement of this paragraph (e)(6).
    (ii) Manner of soliciting TIN. Solicitations made in the manner 
described in Sec.  301.6724-1(e)(1)(i) and (2) of this chapter will be 
deemed to have satisfied the reasonable effort requirement set forth in 
paragraph (e)(6)(i) of this section. A TIN solicitation made after the 
occurrence of an identifiable event must clearly notify the debtor that 
the Internal Revenue Service requires the debtor to furnish its TIN, and 
that failure to furnish such TIN may subject the debtor to a $50 penalty 
imposed by the Internal Revenue Service. A TIN

[[Page 382]]

provided under this section is not required to be certified under 
penalties of perjury.
    (7) Recordkeeping requirements. Any applicable financial entity 
required to file a return with the Internal Revenue Service under this 
section must also retain a copy of the return, or have the ability to 
reconstruct the data required to be included on the return under 
paragraph (a)(1) of this section, for at least four years from the date 
such return is required to be filed under paragraph (a)(4) of this 
section.
    (8) No multiple reporting. If discharged indebtedness is reported 
under this section, no further reporting under this section is required 
for the amount so reported, notwithstanding that a subsequent 
identifiable event occurs with respect to the same amount. Further, no 
additional reporting or Form 1099-C correction is required if a creditor 
receives a payment of all or a portion of a discharged indebtedness 
reported under this section for a prior calendar year.
    (f) Requirement to furnish statement--(1) In general. Any applicable 
financial entity required to file a return under this section must 
furnish to each person whose name is shown on such return a written 
statement that includes the following information--
    (i) The information required by paragraph (a)(1) of this section;
    (ii) The name, address, and TIN of the applicable financial entity 
required to file a return under paragraph (a) of this section;
    (iii) A legend identifying the statement as important tax 
information that is being furnished to the Internal Revenue Service; and
    (iv) Any other information required by Form 1099-C or its 
instructions, or current revenue procedures.
    (2) Furnishing copy of Form 1099-C. The requirement to provide a 
statement to the debtor will be satisfied if the applicable financial 
entity furnishes copy B of the Form 1099-C or a substitute statement 
that complies with the requirements of the current revenue procedure for 
substitute Forms 1099.
    (3) Time and place for furnishing statement. The statement required 
by this paragraph (f) must be furnished to the debtor on or before 
January 31 of the year following the calendar year in which the 
identifiable event occurs. The statement will be considered furnished to 
the debtor if it is mailed to the debtor's last known address.
    (g) Penalties. For penalties for failure to comply with the 
requirements of this section, see sections 6721 through 6724.
    (h) Effective dates--(1) In general. The rules in this section apply 
to discharges of indebtedness after December 21, 1996, except paragraphs 
(e)(1) and (e)(3) of this section, which apply to discharges of 
indebtedness after December 31, 1994.
    (2) Earlier application. Notwithstanding the provisions of paragraph 
(h)(1) of this section, an applicable financial entity may, at its 
discretion, apply any of the provisions of this section to any discharge 
of indebtedness occurring on or after January 1, 1996, and before 
December 22, 1996.

[T.D. 8654, 61 FR 268, Jan. 4, 1996, as amended by T.D. 8895, 65 FR 
50408, Aug. 18, 2000]