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Need Some Clarification Regarding How to Handle 1099′s for Cancellation of Debt Income?

In response to a question I asked previously regarding cancellation of debt related to my 2009 Debt Settlement activity, someone stated that if I don’t receive a 1099 form for 2009, I should not include the forgiven debt as taxable income for 2009 unless I have “an explicit written agreement with the creditor that they are forgiving the debt and that you don not have to repay it”.

Here’s my questions: assuming I do not receive 2009 1099′s for some of all of the debts I settled in 2009, does a written Settlement Agreement between me and the Debt Collector count as an “explicit written agreement”? If so, I’m assuming I would count it as income in 2009 even though I didn’t receive a 2009 1099. But here’s the but . . . what do I do with the 1099 if/when I eventually receive it in a future tax year, since I would have addressed it in 2009?

Tax-wise, it is in my best interests to log this settlement related income in 2009 since I had serious insolvency issues in 2009 that will allow me to not count it as income anyway, but I’m not at all clear how to handle it if eventually receive the 1099 in a later tax year since I would have addressed it in a previous tax year

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One Response to "Need Some Clarification Regarding How to Handle 1099′s for Cancellation of Debt Income?"

  1. StephenWeinstein says:
    If you receive a 1099 in a later year showing “income” for 2009 that you reported on your 2009 return, that is fine and you do not need to do anything.

    If you receive a 1099 in a later year showing that the debt was not forgiven until 2010 or a later year, then it was not yet forgiven in 2009 and should not have been claimed in 2009. You must then amend your 2009 taxes using Form 1040X to remove the claim from your 2009 taxes and claim the forgiven debt in the correct year.

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