What is a 1099?
A 1099 is an Internal Revenue Service (“IRS”) form number concerning debt forgiveness. As a general rule, in the eyes of the IRS, debt forgiveness equals income.
Therefore, if the lender does in fact agree to refrain from pursuing a deficiency judgment on a loan secured by something other than a borrower’s primary residence, whatever amount the lender forgives, will likely be counted as income.
For example, where a lender forgives $100,000.00 in debt, the borrower would owe taxes on the additional $100,000 in income.
Does the lender have to issue a 1099?
Yes, but with a key exception. A 1099 is not required to be issued concerning the settlement of a disputed debt. Consult an experienced attorney.