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1099-C for nonpayment/discharge of debt owed by patients

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  • 1099-C for nonpayment/discharge of debt owed by patients

    Is it necessary/advisable/even possible to issue a 1099-c to patients who have not paid outstanding balances, assuming the debt is forgiven? I saw this suggested as a strategy on a Facebook group I am a part of, and I was curious about why someone might even want to pursue this strategy. I can't think of any way it would be beneficial to a practice. It seems purely like a way to be punitive to patients, as they'd have to pay taxes on the "forgiven" balance unless it's something that's legally required.

  • #2
    If the debt is forgiven, you are legally required to issue a Form 1099-C for amounts >= $600. There are many ways to deal with this short of forgiving the debt, especially if you are a cash basis taxpayer. It gets a little more involved if you are an accrual based taxpayer.

    It does seem needlessly vindictive (in most cases) if it isn't going to get you payment anyway. However, there are always some facts and circumstances, where the client is a deadbeat with more than ample resources to pay the debt.

    I'm sure the CPAs have some war stories, but just because you can do something, doesn't mean you should do something.
    Last edited by spiritrider; 06-27-2021, 07:55 AM. Reason: My assumption and the red text is incorrect. See the following post.

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    • #3
      1099-Cs are only issued for debts that involve actual money lent rather than services not paid for. The instructions to 1099-C only apply to those organization that are lending money.

      Under §108(e)(2) the forgiveness of unpaid medical debt is not taxable income because the payment of the debt would give rise to a deduction under §213. It doesn't matter whether the taxpayer itemizes or has enough medical expenses to exceed the 7.5% of AGI threshold. All that matters is that they're deductible.

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      • #4
        Originally posted by DavidGlennCPA View Post
        1099-Cs are only issued for debts that involve actual money lent rather than services not paid for. The instructions to 1099-C only apply to those organization that are lending money.

        Under §108(e)(2) the forgiveness of unpaid medical debt is not taxable income because the payment of the debt would give rise to a deduction under §213. It doesn't matter whether the taxpayer itemizes or has enough medical expenses to exceed the 7.5% of AGI threshold. All that matters is that they're deductible.
        Thanks for sharing this. Not that I ever thought it was a great idea to send 1099Cs, but I didn't know you couldn't do it if you wanted to. I know you can report someone to the credit bureaus who won't pay you and figured this was similar.
        Helping those who wear the white coat get a fair shake on Wall Street since 2011

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