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Please see instructions - www.irs.gov/pub/irs-pdf/i1099ac.pdfWho Must File. File Form 1099-C if you are:1.A financial institution described in section 581 or 591(a) (such as a domestic bank, trust company, building and loan or savings and loan association). 2.A credit union.3.Any of the following, its successor, or subunit of one of the following:a.Federal Deposit Insurance Corporation,b.Resolution Trust Corporation,c.National Credit Union Administration,d.Any other federal executive agency, including government corporations,e.Any military department,f.U.S. Postal Service, org.Postal Rate Commission.4.A corporation that is a subsidiary of a financial institution or credit union, but only if, because of your affiliation, you are subject to supervision and examination by a federal or state regulatory agency. 5.A Federal Government agency including:a.A department,b.An agency,c.A court or court administrative office, ord.An instrumentality in the judicial or legislative branch of the government.6.Any organization whose significant trade or business is the lending of money, such as a finance company or credit card company (whether or not affiliated with a financial institution). The lending of money is a significant trade or business if money is lent on a regular and continuing basis.
So far - the bank is required to issue the form 1099C as long as the debt is forgiven.
Please be aware that taxpayers are required to report forgiven debt on their tax return REGARDLESS if it was reported to the IRS or not. So if you were able to convince the bank not to issue form 1099C - that still would not relief you from reporting.
Instructions also have certain situations when form 1099C is not required. However - it doesn't seem that any is related to your situation.
You are not required to report on Form 1099-C the following.
Certain bankruptcies. You are not required to report a debt discharged in bankruptcy unless you know from information included in your books and records that the debt was incurred for business or investment purposes. If you are required to report a business or investment debt discharged in bankruptcy, report it for the later of:
The year in which the amount of discharged debt first can be determined, or
The year in which the debt is discharged in bankruptcy.
A debt is incurred for business if it is incurred in connection with the conduct of any trade or business other than the trade or business of performing services as an employee. A debt is incurred for investment if it is incurred to purchase property held for investment (as defined in section 163(d)(5)).
Interest. You are not required to report interest. However, if you choose to report interest as part of the canceled debt in box 2, you must show the interest separately in box 3.
Nonprincipal amounts. Nonprincipal amounts include penalties, fines, fees, and administrative costs. For a lending transaction, you are not required to report any amount other than stated principal. A lending transaction occurs when a lender loans money to, or makes advances on behalf of, a borrower (including revolving credit and lines of credit). For a nonlending transaction, nonprincipal amounts are included in the debt. However, until further guidance is issued, no penalties will be imposed for failure to report these amounts in nonlending transactions.
Foreign debtors. Until further guidance is issued, no penalty will apply if a financial institution does not file Form 1099-C for a debt canceled by its foreign branch or foreign office for a foreign debtor, provided all the following apply.
The financial institution is engaged in the active conduct of a banking or similar business outside the United States.
The branch or office is a permanent place of business that is regularly maintained, occupied, and used to carry on a banking or similar financial business.
The business is conducted by at least one employee of the branch or office who is regularly in attendance at the place of business during normal working hours.
The indebtedness is extended outside the United States by the branch or office in connection with that trade or business.
The financial institution does not know or have reason to know that the debtor is a U.S. person.
Related parties. Generally, a creditor is not required to file Form 1099-C for the deemed cancellation of a debt that occurs when the creditor acquires the debt of a related debtor, becomes related to the debtor, or transfers the debt to another creditor related to the debtor. However, if the transfer to a related party by the creditor was for the purpose of avoiding the Form 1099-C requirements, Form 1099-C is required. See section 108(e)(4).
Release of a debtor. You are not required to file Form 1099-C if you release one of the debtors on a debt as long as the remaining debtors are liable for the full unpaid amount.
Guarantor or surety. You are not required to file Form 1099-C for a guarantor or surety. A guarantor is not a debtor for purposes of filing Form 1099-C even if demand for payment is made to the guarantor.
Seller financing. Organizations whose principal trade or business is the sale of non-financial goods or non-financial services, and who extend credit to customers in connection with the purchase of those non-financial goods and non-financial services, are not considered to have a significant trade or business of lending money, with respect to the credit extended in connection with the purchase of those goods or services, for reporting discharge of indebtedness on Form 1099-C. See Regulations section 1.6050P-2(c). But the reporting applies if a separate financing subsidiary of the retailer extends the credit to the retailer's customers.
See regulations -
26 CFR 1.6050P-1 - Information reporting for discharges of indebtedness by certain entities - - http://www.law.cornell.edu/cfr/text/26/1.6050P-1
Instructions above are mainly based on these regulations.