1099C

[Patrick Michael]

Seems like I get one of these oddball situations every year.  A client purchased a timeshare and signed a mortgage to pay for it.  A short time later they discovered there was fraud involved with the transaction. After some back and forth with the timeshare company, the timeshare agreement and mortgage were canceled.  All was good until the client received a 1099 C for the amount of the mortgage debt that was canceled.  The timeshare said they were required to send out the 1099 C. 

I looked at form 982 and it appears Line 10A would be the best option to exclude the canceled debt.

Is this the best way to deal with this or is there a better option?

 

 

[Margaret CPA in OH]

Well, that just stinks!  Fraud involved and they get a 1099C. 

[Catherine]

Obviously it has to be excluded, because having a fraudulent transaction canceled does not result in cancellation of debt income. Sure, use that line, but perhaps also the 8275 (is that the right form number?) - taxpayer disclosure information, anyway - where you put the facts of the case. 

But maybe worth checking with whatever attorney dealt with the purchase cancellation to get chapter & verse of state law to support the taxpayer's claim.

[Patrick Michael]

8 hours ago, Catherine said:

Obviously it has to be excluded, because having a fraudulent transaction canceled does not result in cancellation of debt income. Sure, use that line, but perhaps also the 8275 (is that the right form number?) - taxpayer disclosure information, anyway - where you put the facts of the case. 

But maybe worth checking with whatever attorney dealt with the purchase cancellation to get chapter & verse of state law to support the taxpayer's claim.

Thanks for the suggestion.

[Lee B]

I believe the actual wording for the exclusion is for "identity theft"

[Lee B]

15 hours ago, Catherine said:

Obviously it has to be excluded, because having a fraudulent transaction canceled does not result in cancellation of debt income. Sure, use that line, but perhaps also the 8275 (is that the right form number?) - taxpayer disclosure information, anyway - where you put the facts of the case. 

But maybe worth checking with whatever attorney dealt with the purchase cancellation to get chapter & verse of state law to support the taxpayer's claim.

I haven't had one of these for some years. However after doing to some reading to refresh my memory, it's not obvious to me that a fraudulent transaction

can be excluded. There certainly is no place on Form 982 to to exclude the this transaction. If you ignore the 1099 C you will likely trigger a CP 2000.

The "identity theft" exclusion applies to to the issuance of the 1099 C. 

Perhaps I'm overlooking something

[Catherine]

Maybe this is where the separate thread here on the forum that mentioned this article on scam theft losses could be of use.

https://www.taxnotes.com/featured-news/tax-pros-welcome-clarity-scam-theft-loss/2025/03/14/7rnbr

[Lee B]

38 minutes ago, Catherine said:

Maybe this is where the separate thread here on the forum that mentioned this article on scam theft losses could be of use.

https://www.taxnotes.com/featured-news/tax-pros-welcome-clarity-scam-theft-loss/2025/03/14/7rnbr

After reading the article in Tax Notes, the casualty loss relief for scam theft losses is limited to those transactions seeking profit.

Personal transactions don't qualify for this relief.