Some Clients Receive 1099's; But They Don't All Owe Taxes

Several times per year, clients call me because they have received "1099's" from the IRS. You can receive a 1099 from a creditor if you have had one or more of your debts forgiven. If a debt is forgiven in bankruptcy, there is no tax liability for it, under Section 108 of the IRS Code.

But, if your debts are cancelled in bankruptcy, you may have your "tax attributes" reduced to the extent of the discharge of your debts. For the vast majority of my clients, that does not create a problem for them.

Watch the IRS Taxpayer Advocate Nina Olsen's video about cancellation of debt income, and consult with your tax advisor if you receive 1099's from your creditors for cancellation of debt income. It needs to be dealt with on your tax return.