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Why Did the Credit Union Report My Forgiven Debt on a 1099C? – Anthony

Written by Jim Buttonnow

“Dear Jim,

I took a personal and car loan out from a federal credit union was unable to pay. Just spoke to IRS they had me setup payment arrangement & told me that i might not owe because bank did a 1099c. Supposedly it was reported as earned income,but this is the first time I’ve heard about it.

If i was forgiven for debt how do I owe?


Hi Anthony:

From your description it appears that you did not report Form 1099-C, Cancellation of Indebtedness, income in a prior year. The IRS most likely adjusted your return when they matched your return against the information statements on file under your social security number (called the IRS automated underreporter program or “CP2000” program, as it is referred to by the notice number you receive).

Before you agree to pay taxes on the 1099C, you should review whether an exception applies. It is often misunderstood that debt cancellation can result in taxable income.

Whether you owe tax on the 1099-C is based on your particular facts. You may be relieved from the tax if you are not solvent (i.e. your liabilities exceeded your assets by more than the amount of the debt cancelled) at the time the debt was cancelled. Also, there is also a bankruptcy exception. See this page for the exclusions. If an exclusion applies, you can file Form 982 with the CP2000 response (assuming your CP2000 deadline date has not expired) or with an amended return (Form 1040X).

Again, if an exception applies you can file a response to the CP2000 notice (if the time period to respond has not already expired on the CP2000) or an amended return (Form 1040X).



Jim Buttonow is one of the resident debt experts here at that helps people for free. Jim is a licensed CPA who spent 19 years with the IRS coordinating large compliance teams of IRS agents and specialized personnel. In the last 5 years, Jim has invented consumer and practitioner software and treatises on how to address many different tax issues. He has also represented many people before the IRS examination, collection, filing, and appeals functions. He currently assists taxpayers on an active pro bono tax practice aimed at serving people in need. He can be reached at

If you have a tax question you’d like to ask just use the online form. I’m happy to help you totally for free.

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About the author

Jim Buttonnow

Jim Buttonow, CPA/CITP, practices in the area of IRS and State tax controversy. He has more than 29 years of experience in IRS practice and procedure. Reach Jim at [email protected] or through his website

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