1099-C From Out Of The Blue? Don't Ignore It! Fight It!

If you owe somebody money and then you don't have to pay it back that can create taxable income for you. It is called either income from the discharge of indebtedness or cancellation of debt (COD). The rules about when you can exclude COD from taxable income are in Code Section 108. Timing is important. If you are bankrupt or insolvent when the debt is discharged you can exclude it from your taxable income (You may have to adjust your basis in property). The other way that timing can be important is that if you miss reporting COD when it happens and three (or maybe six) years go by, you are home free.