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Hi and welcome to Just Answer!Several issues...First of all - the recipient doesn't like 1099C - which generally means taxable income (unless exemption could be used) and has to be reported to the IRS. As the loan is uncollectable - the form 1099C is issued in the year it became uncollectable - not when you decide to issue the form. Thus for instance - if the loan was taken in 1997 - and no collection efforts was made - the loan became uncollectable in 2000 (three years statute of limitation) - and the form 1099C should be issued for 2000.Generally - you need to identify when the loan was due.
The testator who made the loan passed away in 1998 leaving his wife (who was ignorant of the details of trust activity) as successor trustee. In 2011 the testator's wife was declared incapacitated and I took over as successor trustee.
I read the trust and the trust seemed to require and accounting so I set out to provide it. I only discovered the loan had not been paid and had not been gifted in 2011.
Are you saying that if no-one sent out a 1099 c in 2000 then I cannot sent one out at a later date and the income should never get reported?
Reading the loan instrument the loan was due in 2000 but there was no one around to collect it--according to my reading of the original loan doc.
All these are internal circumstances on the trust. Regardless of these circumstances - the trust is a separate legal entity.The first question - if the loan was a true loan - and it was originally intended to be repaid? If No - that was not a loan - but a distribution. While it was made back in 1997 - the statute of limitation is run out to report that as a taxable income unless that was a fraud.If that was a true loan which was intended to be paid back - we need to verify when payments were due. If payments were due to start in 1997 - and were not demanded for three years - the loan became uncollectable in 2000 - and should be included into 2000 tax return as forgiven debt.If however - the first payment was due for instance in 2000 - and was not paid - the statute of limitation started from that date - and run out in 2003.
The loan was a true loan and was supposed to be paid back.
So are you saying the unpaid loan became no longer taxable after the statute of limitations ran out? Seems like it would be uncollectible but why would it cease to be taxable if never paid back?
We would have reported it as a taxable event earlier had we know it was a true loan and never gifted. We became trustees in 2011 and did were not aware that it was a loan until we checked.
The unpaid loan doesn't became not taxable...It is taxable, but you may you decide when it becomes taxable.It became taxable in the year when it became obvious that the loan woudl not be paid back.If the first payment was due for instance in 2000 - and was not paid - the trust should sue the debtor and try to collect - and if collection efforts failed - the statute of limitation run out in 2003 (three years later) - that means the loan became taxable in 2003 - and should be reported on 2003 tax return.
That is not your personal fault because you became trustees in 2011 - but that would not change anything - and issuing the form 1099C seems as not correct.
Does that mean there is no tax due? Can I get in trouble for issuing it even though I did it in good faith? What are the implications of "issuing the 1099c seems as not correct."?
There are tax due - but based on your information - for 2003 - not for 2012 or 2011.
Another issue - that you may not force someone to pay taxes. In additional - because of time period - the IRS may not collect such taxes - assuming the debtor timely filed his/her tax returns - the statute of limitation on assessment run out in three years or six years if missed income is more than 25% of total income. So generally the IRS may not assess 2003 tax liability after Apr 15, 2010.
You are incorrect.
See page one of this article regarding new IRS requirements for sending out 1099c.
Also see page 2 near top. There is no statute of limitations on a 1099c. Can be issued any time a recognizable event occurrs. I can say I thought the loan would be paid as the beneficiary has not gone away.