Lenders who cancel debt income of $600 or more are required to file the IRS 1099-C form, and the person or entity that owed the debt receives a copy of it too. Local tax preparation firm, Selph and Friday CPA in Texarkana, TX, helps clients decipher these notices to determine if payments are still due on any old debt. If needed, the team of agents also provides professional IRS representation services to assist individuals with tax matters, often involving the 1099-C.

To dispel any confusion about the form, the CPA agency answers some common FAQs:

Why Did I Receive A 1099-C?

There are several possible reasons for receiving the form. If a taxpayer’s home was sold in a short sale, the mortgage lender might have negotiated to accept less than the amount due. Likewise, if a house was foreclosed, the home’s most current value minus the amount still owed was either not paid or forgiven by the lender.

How Do I Find Out if I Owe Anything?

It often depends on the age of the debt. The balance could still be due if payments weren’t made in three years without any attempts by a collection agency to recover it, and the statute of limitation varies by state. If the borrower was able to pay off a negotiated amount, they probably don’t owe any further payments. When in doubt, your IRS representation will provide additional guidance.

Am I Responsible for Paying any Taxes on the Debt?

The IRS looks at a number of factors to determine if taxes need to be paid. For instance, if the taxpayer has more liabilities than assets, they may be able to request an exemption. This applies to those whose total liabilities exceed the debt amount listed on the 1099-C. An individual's tax bracket and income are additional factors to determine if anything is owed.

If you’ve received a 1099-C in the mail, don’t panic. Call the office of Selph and Friday CPA at (903) 792-0281 to schedule an appointment. Their licensed and registered agents provide IRS representation, as well as the recourses you need to navigate the paperwork. You can also visit the website for details on other tax help services.