Debt forgiveness/restructure

[Gail in Virginia]

I have a new client, S-corporation. In verifying loan balances, there was an adjustment of $183,000. made to their loan balance at the beginning of this year. According to the finance company, they wrote off 90% of their portfolio of loans when they converted to a new system. Upon advice of their legal counsel they are not issuing any 1099-C's because their is some doubt about the legitimacy of the loans. It appears that there should have been a write off of about $100,000 the year before. However, I don't have any exact numbers for 2008, and the prior accountant apparently did not verify the balance with the finance company at the end of the year.

How do I treat this on the tax return? Do I report it as income even though they were not issued a 1099C? If the original amount was reported "in error," should it just be an adjustment to the loan balance and not income? I have never had anything remotely resembling this. And the client needs the return right away for the bankruptcy attorney. Of course. :scratch_head:

[jainen]

>>Do I report it as income even though they were not issued a 1099C?<<

Suppose a 1099C was issued when your client did NOT have any relief of debt. Would you include that as income anyway? In my opinion, you should try to make your own work as accurate as possible, even when somebody else does something else.