Oh! Good question! I want to know!

I have a couple of turnips I'll never get anything from, with judgements that are aging.

I would love to reduce the EIC the deadbeats get. :)

I did a 1099C a few years ago after my Mother and Aunt rented to some deadbeats. Of course, I had to be the bad guy and get them out. They almost destroyed the house.

Barb, no, the income to the deadbeat occurs when the judgment owner (landlord) forgives the debt. The 1099 is given for the tax year in which the income was gained (debt was forgiven).

Why and How.... Just one final thing when you know there's no way you'll be collecting. First I send a heads-up letter that this is what we will be doing before we do. Sometimes that's enough to get some people to try to work a payment plan w/ you, no matter how small.

And, if you are giving up anyways, might as well give them a 1099-c as one final act that YOU are in control and YOU decided to forgive the debt.

HOW do you write off something as an expense that YOU did not collect? It is considered income to the tenant, but not sure YOU can write it off...

Any accountants out there?

IMO you would have to split the amount between them. If you bought 5 gallons of paint & used some at 2 different properties you couldn't deduct the full cost at each property.

It becomes an expense when it is written off in in a different accounting period.

I'm on an accrual basis. I invoice the tenant $100 in 2016.

It is recognized as revenue. At the end of 2017 I determine it is uncollectible. I credit the tenants file for $100 which so that revenues and expenses are in balance for 2017.

It is similar to a lender. Writing off bad debt is called debt forgiveness. The IRS requires lenders to send a 1099-C since it is now considered income to them. While you do not receive any money you do get the satisfaction of them having to pay taxes on it. If only we could be there when they receive the 1099 to see their expression. Priceless!

In order to write it off you must prove to the IRS that you have made every reasonable effort to collect the debt. I assume it would require more than just getting a money judgement.

To order official IRS information returns, which include a scannable Copy A for filing with

the IRS and all other applicable copies of the form, visit www.IRS.gov/orderforms. Click on

Employer and Information Returns, and we’ll mail you the forms you request and their

instructions, as well as any publications you may order.

Marv/IL, from what I've read, financial institutions are REQUIRED to file 1099-Cs but other individuals may voluntarily file them.

See below:

"While the requirement to report discharges of indebtedness applies only to the entities described above, there is no specific prohibition in the Internal Revenue Code or the Income Tax Regulations that forbids the reporting of discharges of indebtedness by entities not required to report. Such reporting may encourage voluntary tax compliance and proper gross income inclusions."

It goes on to say that it shouldn't be used as a way to collect a debt.

The memo states that the collection of a debt after filing a Form 1099-C “ought to occur very infrequently.”

According to the IRS instructions, it appears you use Reason Code G — Decision or policy to discontinue collection.

Jilly, I like your thinking. I have done a lot of research on this, I'm pretty sure you all of your statements are right. It doesn't matter when the debt occurred. Banks issue these all the time years later. Its when you give up going for the money.

Financial institutions are required and individuals have the option to. There is case law on this. There has been a lot discussion on here over the past couple years you can search for.

I like to push the line in most things in life, this one I wouldn't. You're screwing them either way, whats the difference in money they would owe if you if gave more to one than the other? The money they would owe is only the percentage in taxes they would pay on the income that is forgiven. In your case it might be $400 difference. Is that really worth it? Then youre also taking the chance of reporting something the wrong way to the IRS if you forgive them both the judgement amount. To me, it woulnd't be worth it.

I agree with WMH. Which is kinda funny because we disagreed last time, but now he has come over to my (dark) side. :) Here's the thread from 2013 when I said the same thing:

bbs2.mrlandlord.com/display.php?id=14054557

Note that, even back in 2013, I was disagreeing with Marv on this and provided a bunch of references to back up why I felt that way. I never saw a response.

- John...

For convenience, here's my response from that 2013 thread so that you don't have to copy and paste to go see it:

---

I have seen repeated confusion on that -- even from Marv here (who tends to know his stuff). MY understanding is that the confusion comes from the difference between those that are REQUIRED to report using the 1099-C and those that are ALLOWED to report using it. Basically, those REQUIRED to file a 1099-C for forgiving debt include:

"financial institutions, credit unions, and organizations whose significant trade or business is the lending of money"

Again, that those that MUST use the form. Therefore, a lot of people seem to think "Ok, Landlords are not on that list, so they CANNOT use the form." Back in 2010, Marv state that it could "only be used by banks." However, I disagree with that -- and I'm fairly certain the IRS does too.

See this IRS memo:

www.irs.gov/pub/irs-wd/1998-020.pdf

The question basically asked was: "May an individual or entity not REQUIRED to file a Form 1099-C under section 6050P of the Internal Revenue Code nevertheless voluntarily file such a form?"

The summary answer:

"Individuals or entities not required by section 6050P to file Form 1099-C may nevertheless voluntarily file such forms in appropriate circumstances."

It also states: "While the requirement to report discharges of indebtedness applies only to the entities described above, there is no specific prohibition in the Internal Revenue Code or the Income Tax Regulations that forbids the reporting of discharges of indebtedness by entities not required to report. Such reporting may encourage voluntary tax compliance and proper gross income inclusions."

You can read the whole thing for more details, but my general understanding of it is that we can indeed file 1099-C forms for forgiving debt. These articles agree with my interpretation:

dinesentax.com/2537/issue-a-1099-c-to-a-deadbeat-client-or-customer

www.aicpa.org/publications/taxadviser/2012/december/pages/clinic-story-11.aspx

So, I think we're fully allowed to issue a 1099-C.

- John...

P.S. I am not a lawyer or tax advisor. Your mileage may vary. Look both ways before crossing.

Thanks, John! My mileage is doing great!! :-)