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Client issued 1099-c for personally-guaranteed c-corp debt. How would we report this? Especially as a reduction in the basis is necessary.

wootwoot28
Level 1

Client personally guaranteed loan for a c-corp. A portion of the loan was discharged by the bank and the 1099-c was issued to the client PERSONALLY. How would we report this? Especially as a reduction in the basis is necessary. Would we report on 1040 or 1120 or both?! 


Tags: Form 982, section 108, tax attributes, indebtedness, basis adjustment 

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George4Tacks
Level 15

Report on the 1040. 


Here's wishing you many Happy Returns

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7 Comments 7
wootwoot28
Level 1
I should add that the C-corp became insolvent (which is why the bank discharged a portion of the debt). However, the individual taxpayer is not personally insolvent. Does that mean the 1090-C income will be taxable? Can the insolvency exclusion still apply?
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George4Tacks
Level 15
Taxpayer assumed personal responsibility for the loan, so I would see it as a 1040 income item.
Since the corporation was insolvent, has it closed? Do you have a stock loss as at least a partial offset?

Here's wishing you many Happy Returns
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TaxGuyBill
Level 15
As a side note, I THINK that might increase his Basis in the corporate stock (I would need to research it to be sure though).
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wootwoot28
Level 1
Corp did not close and he did not loose the asset. However the asset has lost the majority of it's value.
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George4Tacks
Level 15

Report on the 1040. 


Here's wishing you many Happy Returns
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wootwoot28
Level 1
Thanks for the response George4Tacks! Will you please see the additional info shared above and advise
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TaxMonkey
Level 8

I do not believe that canceled debt is taxable to a guarantor.  The reason being that, the guarantor would have recourse against the original debtor, and therefore the canceled debt would result in a deductible expense (bad debt) and therefore would not be included in income - see IRC 108(e)(2).

https://www.law.cornell.edu/uscode/text/26/108

I also believe that it would be incorrect to issue a 1099-C to a guarantor as per 1.6050P-1(d)(7)

https://www.law.cornell.edu/cfr/text/26/1.6050P-1

Substantial authority is hard to come by, but this letter from the IRS references the relevant case law:

https://www.irs.gov/pub/irs-wd/02-0024.pdf

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