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IRS Letter to ACA Request for Guidance on Issuing 1099-C to consumers

IRS Letter to ACA Request for Guidance on Issuing 1099-C to consumers

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Published by Jillian Sheridan

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Published by: Jillian Sheridan on Mar 11, 2012
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05/13/2014

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DEPARTMENTOFTHETREASURY
INTERNALREVENUESERVICEWASHINGTON,D.C.20224
OFFICEOFCHIEFCOUNSEL
October07,2005CC:PA:APJP:B01GENIN-130393-05UIL:6050P.00-00RozanneM.AndersenACAInternational,GeneralCounsel4040West70thStreetMinneapolis,MN55435OearMs.Andersen:ThisletterrespondstoyourrequestforinformationdatedMay18,2005,regardingtherequirementsundersection6050PoftheInternalRevenueCode(Code)forreportingcancellationofindebtedness.Specifically,yourequestinformationconcerningthereportingrequirementsundersection6050P(c)(2)(O)fororganizationsthatpurchasedebt.Youstatethatyourassociation'smembersareorganizationsthatpurchasedebtforlessthanthefacevalueofthedebt.Youalsostatethattheseorganizationsgenerallypursuecollectionactivityonpurchaseddebtsuntilthecollectionactivityiseitherprohibitedbylawortheperiodforreportingthedebttoacreditreportingagencyexpires.Youstatethatanorganizationmaypurchasedebtforalumpsumamountandmaynotknowthebreakdownofthatamountintoprincipal,interest,charges,andfees.Oftenthesedebtsaresettledforanamountlessthanthefullamountowed.Thetypicalsettlementarrangementprovidesthatthedebtorwillpayanamountequaltoorapproximatingtheprincipalbalancedueandthatallinterest,fees,andcharges(totheextenttheseamountscanbestbedeterminedorestimated)willbedischarged.Yourequestedclarificationonthesection6050Preportingrulesintheformofpublishedguidanceoraprivateletterruling.TheInternalRevenueService(Service)hasdecidedtoaddressyourinquiriesintheformofaninformationletterratherthanpublishedguidanceoraprivateletterruling.Beforeissuingthefinalregulationsundersection6050P(c)(2)(O)oftheCode,theServicepublishedanoticeofproposedrulemakingintheFederalRegisteronJune13,2002.See67
F.R
40629.Thenoticeofproposedrulemakingcontainedarulethat,forpurposesofsection6050P(c)(2)(O),"lendingmoney"includesacquiringanindebtedness.Seesection1.6050P-2(e)oftheproposedregulations.Thenoticeofproposedrulemakingprovidedtheopportunityforpubliccomment;theServicedidnotreceiveanycommentsfromorganizationsthatpurchasedebtontheruleinsection1.6050P-2(e)beforeissuingthefinalregulations.The
 
GENIN-130393-05
2
Serviceisnotinapositiontoaddressyourconcernsinpublishedguidanceatthistime.Inaddition,yourrequestdoesnotmeettherequirementsofaprivateletterrulingrequestsetforthinRev.Proc.2005-1,2005-1I.R.S.1.Yourinquiryposesseveralspecificquestions.Wehavegroupedthequestionsandanswersintothefollowingcategories.Q1.Whoisrequiredtoreportadischargeofindebtednessundersection6050PoftheCodeandwhendoestherequirementtoreportarise?A1.Section6050P(a)oftheCodeprovidesthatanyapplicableentitythatdischargesindebtednessofanypersonduringacalendaryearmustfileaninformationreturnreportingthedischarge.Section6050P(b)providesthatnoinformationreportingisrequiredundersection6050P(a)iftheamountofthedischargeislessthan$600.Section6050P(c)(2)(D)definesan"applicableentity"toincludeanorganizationwithasignificanttradeorbusinessoflendingmoney.Section1.6050P-2(a)oftheIncomeTaxRegulations(regulations)providesthatlendingmoneyisasignificanttradeorbusinessiftheorganizationlendsmoneyonaregularandcontinuousbasisduringthecalendaryear.Section1.6050P-2(e)providesthatlendingmoneyincludesacquiringanindebtedness.Anorganizationthatpurchasesdebtmaybeanorganizationwithasignificanttradeorbusinessoflendingmoneyforpurposesofsection6050P(c)(2)(D)oftheCodeandtheregulations.Thesection6050P(c)(2)(D)reportingrequirementsapplytodischargesofindebtednessthatoccuronorafterJanuary1,2005.Seesection1.6050P-2(i).Thereportingrequirementsofsection6050PoftheCodeandtheregulationsapplyonacalendaryearbasis.Section1.6050P-1oftheregulationsprovidesthat,upontheoccurrenceofanidentifiableeventduringacalendaryear,anapplicableentitymustreportcancellationofindebtednessof$600ormoreduringthecalendaryearunlessanexceptiontoreportingapplies.Section1.6050P-1(b)(2)(i)provideseightidentifiableeventsthattriggerreportingofcancellationofindebtedness.Q2.Howdoesthe36-monthnon-paymenttestingperiodidentifiableeventapplytoanorganizationthatpurchasesdebt,andhowmaytheorganizationrebutthepresumptionthatthisidentifiableeventhasoccurred?A2.Section1.6050P-1(b)(2)(i)(H)oftheregulationsprovidesarebuttablepresumptionthatanidentifiableeventhasoccurredduringacalendaryearifacreditorhasnotreceivedapaymentduringa36monthtestingperiodendingatthecloseoftheyear.Inapplyingthenon-paymenttestingperiodtoanorganizationthatpurchasesdebt,onDecember31ofeachyear,theorganizationmustdeterminehowlongithasnotreceivedpayment.Seesection1.6050P-1(b)(2)(iv).Thesection6050P(c)(2)(D)reportingrequirementsapplytodischargesofindebtednessthatoccuronorafterJanuary1,2005.Seesection1.6050P-2(i).Ifthenon-payment
 
GENIN-130393-05
3
testingperiodidentifiableevent,oranyotheridentifiableevent,occurredpriortotheeffectivedateofsection1.6050P-2,noreportingisrequiredupontheoccurrenceofasubsequentidentifiableevent.If,however,anidentifiableeventhasnotoccurredbeforetheeffectivedateofsection1.6050P-2,anorganizationmustdetermineifanidentifiableevent,includingthenon-paymenttestingperiodidentifiableevent,hasoccurredduring2005orduringanysubsequentyearforpurposesofsection6050Preporting.Anorganizationcanrebutthepresumptionthatthenon-paymenttestingperiodidentifiableeventoccurredbyengaginginsignificant,bonafidecollectionactivityduringthelast12monthsthatismorethannominalorministerial.Seesection1.6050P-1(b)(2)(iv)oftheregulations.Thiswouldrequiretheorganizationtopursuecollectionactivitybeyondmerelygeneratinganautomatedmailing.Seesection1.6050P-1(b)(2)(iv)(A).TheorganizationcanalsorebutthepresumptionifthefactsandcircumstancesonJanuary31ofthefollowingyearindicatethedebthasnotbeendischarged.Seesection1.6050P-1(b)(2)(iv).Thefactsandcircumstancesmayincludetheexistenceofalienrelatingtothedebt.Seesection1.6050P-1(b)(2)(iv)(B).03.Howshouldanorganizationthatpurchasesdebtreportdischargesofindebtednessifitdoesnotknowthebreakdownofanamountowedintoprincipal,interest,charges,andfees?A3.Section1.6050P-1(c)oftheregulationsprovidesthatan"indebtedness"meansanyamountowedandmayincludestatedprincipal,fees,statedinterest,penalties,administrativecostsandfines.However,adischargeofinterestisnotrequiredtobereported(seesection1.6050P-1(d)(2)),andonlydischargesofstatedprincipalarerequiredtobereportedinthecaseofalendingtransaction(seesection1.6050P-1(d)(3)).Section1.6050P-1(a)(1)oftheregulationsprovides,inpart,thatanapplicableentitymustreporttheamountoftheindebtednessdischargedandanyotherinformationrequiredbyForm1099-C,"CancellationofDebt."TheamountofthedischargeddebtisreportedinBox2.AnyamountofinterestthatisincludedinBox2isseparatelyreportedinBox3.Accordingly,toreportproperly,anapplicableentitymustseparatelyreporttheamountofdischargedinterestinBox3ifitincludedthedischargedinterestinthetotalamountreportedinBox2.Ifanapplicableentitydoesnotknowthebreakdownofapurchaseddebtintoprincipal,interest,charges,andfees,itshouldtrytoobtainthisinformationsothatitcandeterminetheamountofinterestandprincipaldischarged.If,however,theentitycannotobtainthisinformation,theentityshouldreportusingthebestavailableinformation.SeeO&ASfordiscussionofwaiverofpenaltiesforfailuretofilecorrectinformationreturnsandfurnishcorrectinformationstatements.

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