A lender is responsible for reporting on income received by a borrower when the loan is closed. A borrower benefits from the amount the business gains to settle the loan by acquiring property that secures a loan or taking responsibility for abandoned property. The borrower no longer has an obligation to pay the lender, but does have an obligation to report loan amounts that will not be repaid as income. Filing a 1099-A informs both the IRS and the borrower on the debt amount that is released.
Collect information and documents on the closed debt and the property. You need all debt and closure information ready to complete the tax form. Dates for loans and property transactions are important.
Order Form 1099-A. Form 1099-A is the form you need for reporting amounts closed by property acquisitions or abandoned property. However, the general instructions for Form 1099 are used with the instructions for Form 1099-A. The forms and instructions can be ordered from the IRS by calling 1-800-TAX-FORMS. Electronic filing is available at the "Filing Information Returns Electronically" web page. If you are filing at least 250 forms 1042-S, 1098, 1099, 5498, 8027 or W-2G for any calendar year, you must use electronic filing.
Report the amount of closed debt to the IRS on Form 1099-A. State the balance outstanding on the borrower's loan principal, and indicate whether the borrower was personally liable for the debt repayment. Fill in the description and fair market value of the property used to secure the debt to confirm the value gained in return for the debt closure. Specify acquired property or abandoned property. Include the date for the property acquisition or when the abandonment was known.
File Form 1099-A Copy A with Form 1096 (Form 1096 is the transmittal document for filing the IRS copy). Mail the completed Form 1099-A to the IRS address stated in the general instructions for Form 1099, or submits via the Internet if filing electronically.
Send a statement on the closed debt amount to the borrower (Form 1099-A Copy B with information for the borrower can be the statement). Or, if you prefer, you can choose to write your own statement. An acceptable substitute statement includes the tax year, form number and form name.