I Settled an SBA Loan But Got a 1099-C Many Years Later


Dear Steve,

We found your website looking for help with a 1099-C (G) form we received. I would appreciate your expertise.

In 2006, we received an SBA loan through a local bank. We ended up closing the company and filed for bankruptcy. In 2011 we received a 1099-C for cancellation of the debt with the bank. We thought we were all set. In Feb. 2018, we received a letter from the US Dept. of the Treasury regarding the collection for the SBA loan, we contacted the bank with a copy of the 1099-C, and they were going to clear it up. Then Dec. 2019, we received another letter from the treasury regarding collection. Again we contacted the bank, and they were contacting SBA to clear it up. We thought everything had been settled. Then Jan. 31, we received a 1099-C from SBA with G listed on it. We contacted the bank, and this is the response we received:

“The Bank filed a claim for the SBA to honor its guaranty associated with your loan in 2006. The SBA paid the Bank 50% – the guaranty percentage- of the outstanding balance at the time of purchase, some accrued interest, and a portion of legal expenses if there were any outstanding at the time. Subsequently, the Bank settled with you on the remaining debt for a $7,500.00 payment. There was nothing further that the Bank could collect, so a 1099 tax statement for the Banks portion of the forgiven debt was issued.

In general, the SBA has a right to collect from obligated parties for guaranty amounts paid to lenders. They do this by referring the borrower to the United States Treasury Department who operates as a collection agency under these circumstances. This is what happened in your case. The SBA erroneously referred you to Treasury for further collections after paying the Bank on its guaranty. As you know, this issue was resolved last year when the SBA recalled your loan from US Treasury to prevent further collection of the debt due to the settlement with the Bank.

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At that point, the SBA recognized that there was nothing further for them to collect, and so they issued the 1099 tax statement for the SBA’s portion of the forgiven debt.

That is why there are two statements, one from the Bank and one from the SBA. While the SBA can no longer pursue the debt, there are still tax consequences associated with their forgiveness.”

Is this possible for the SBA to send us a cancellation of debt for 2020 when we already settled with the bank in 2011? Is there tax liability with the G status? What do we need to do if we can do anything?



Dear Julie,

Do You Have a Question You'd Like Help With? Contact Debt Coach Damon Day. Click here to reach Damon.

I asked my tax expert friend, Jim Buttonow, CPA, and he made the following observation. Jim said, “Looks like a “duplicate 1099C” – correct? If so, then he should put a statement on his return that he received it – but show where it was included back in 2011.”

If I had to offer any possible explanation, it would be that further digging would be needed to determine if when you settled the debt if it was to settle the entire debt or only the 50% the bank guaranteed and the SBS took its sweet time to deal with the other 50%.

Otherwise, this might be the result of you settling the entire debt with the bank, the SBA later paying off on the guarantee, and that resulted in a 1099-C with the G code from the SBA. The SBA issues the copy of the 1099-C you sent me.

Sadly, these are the toughest problems to solve since it involves something that happened almost a decade ago, and two institutions are involved, and one of them is the government.

My opinion is this problem needs a two-prong approach. If you are assuming this is a duplicate 1099-C, then follow Jim’s advice. But if you really want to get to the bottom of what is going on here, I think further digging and research is needed.

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This all might be moot however if this SBA loan and the bank loan were included in your bankruptcy as personal liability. In that case, the forgiveness was tax-free under Title 11. See IRS Form 982 and look at line 1a. This seems to only be a concern if you personally guaranteed the loan and this is being reported on your personal Social Security number.

Damon Day - Pro Debt Coach

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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