IRS Publishes Final Regs on Reporting Rules for Debt Cancellation

Information Reporting for Discharges of Indebtedness

 [4830-01-P]

ACTION: Final regulations and removal of temporary regulations.

SUMMARY: This document contains final regulations relating to information returns for cancellation of indebtedness by certain entities under section 6050P of the Internal Revenue Code. The final regulations will avoid premature information reporting from certain businesses and will reduce the number of information returns required to be filed. The final regulations will impact certain businesses required to file information returns under the existing regulations.

DATES: Effective Date: These regulations are effective on September 17, 2009.

Applicability Date: For dates of applicability, see § 1.6050P-1(h).

FOR FURTHER INFORMATION CONTACT: Barbara Pettoni at (202) 622-4910 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments to the Income Tax Regulations (26 CFR part 1) under section 6050P relating to information reporting for cancellation of indebtedness by certain entities. In general, section 6050P requires certain entities to file information returns with the IRS, and to furnish information statements to debtors, reporting discharges of indebtedness of $600 or more. The amendments in this document will avoid premature reporting of cancellation of indebtedness income by reducing the information reporting burden on certain entities that were not originally within the scope of section 6050P. The amendments will also protect debtors from receiving information returns that prematurely report cancellation of indebtedness income from such entities.

Final and temporary regulations (TD 9430) were published in the Federal Register (73 FR 66539) on November 10, 2008. On the same date, a notice of proposed rulemaking (REG-118327-08) cross-referencing to temporary regulations was published in the Federal Register (73 FR 66568). A correction to final and temporary regulations (73 FR 75326) and a correcting amendment (73 FR 75326) to the regulations were published in the Federal Register on December 11, 2008. Only one commenter responded to the proposed regulations, presenting oral comments at a public hearing on the proposed regulations at the IRS on March 13, 2009, as well as written comments. After considering these oral and written comments, the IRS and the Treasury Department are adopting the proposed regulations without change and removing the corresponding temporary regulations.

Explanation of Comments

The sole commenter agrees with the amendments in the proposed regulations to reduce the information reporting burden on certain entities that were not originally within the scope of section 6050P and thereby avoid premature reporting of cancellation of indebtedness income. The commenter, however, requested additional guidance on several other areas addressed in the existing regulations under section 6050P including: (1) the meaning of “stated principal” as used in § 1.6050P-1(c) and (d)(3) when applied to transactions involving entities that acquire a loan from another person; (2) what information, if any, must be provided to a debtor prior to filing Form 1099-C, “Cancellation of Debt”; (3) what constitutes significant bona fide collection activity under § 1.6050P-1(b)(2)(iv)(A); and (4) how to report the discharge of a debt that has been reduced to judgment. These other areas are beyond the scope of the proposed regulations and are therefore not addressed in these final regulations. The Treasury Department and the IRS will consider the concerns raised in these comments in determining whether to issue additional guidance under section 6050P.

No revisions were made to the proposed and temporary regulations or the corrections to those regulations. Accordingly, this Treasury decision adopts the proposed regulations without substantive change and removes the corresponding temporary regulations.

Special Analyses

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because the regulation does not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Internal Revenue Code, the notice of proposed rulemaking preceding this regulation was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Drafting Information

The principal author of these regulations is Barbara Pettoni, Office of Associate Chief Counsel (Procedure and Administration).

List of Subjects in 26 CFR Part 1

Income tax, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

Accordingly, 26 CFR part 1 is amended as follows:

PART 1 -- INCOME TAXES

Paragraph 1. The authority citation for part 1 is amended by removing the entry for § 1.6050P-1T to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 1.6050P-0 is amended as follows:

 1. The introductory text is revised.

§ 1.6050P-0 Table of contents.

This section lists the major captions that appear in §§ 1.6050P-1 and 1.6050P-2.

§ 1.6050P-1 Information reporting for discharges of indebtedness by certain entities.

* * * * *

(b) * * *

(2) * * *

(v) Special rule for certain entities required to file in a year prior to 2008.

* * * * *

Par. 3. Section 1.6050P-1 is amended by revising paragraphs (b)(2)(i)(H), (b)(2)(v) and (h)(1) to read as follows:

§ 1.6050P-1 Information reporting for discharges of indebtedness by certain entities.

* * * * *

(b) * * * (2) * * *

(i) * * *

(H) In the case of an entity described in section 6050P(c)(2)(A) through (C), the expiration of the non-payment testing period, as described in § 1.6050P-1(b)(2)(iv).

* * * * *

(v) Special rule for certain entities required to file in a year prior to 2008. In the case of an entity described in section 6050P(c)(1)(A) or (c)(2)(D) required to file an information return in a tax year prior to 2008 due to an identifiable event described in paragraph (b)(2)(i)(H) of this section, and who failed to so file, the date of discharge is the first event, if any, described in paragraphs (b)(2)(i)(A) through (G) of this section that occurs after 2007.

* * * * *

(h) * * * (1) In general. The rules in this section apply to discharges of indebtedness after December 21, 1996, except paragraphs (e)(1) and (e)(3) of this section, which apply to discharges of indebtedness after December 31, 1994, except paragraph (e)(5) of this section, which applies to discharges of indebtedness occurring after December 31, 2004, and except paragraphs (b)(2)(i)(H) and (b)(2)(v) of this section, which apply to discharges of indebtedness occurring after November 10, 2008.

* * * * *

Par. 4. Section 1.6050P-1T is removed.