Current issues in information reporting.

• Author: Pflieger, Deborah J.

Congress and the IRs continue to refine the rules in the area of information reporting by broadening certain reporting requirements and reducing the burden of others. Recent changes in the reporting requirements for cancellation of debt (COD) income, barter exchanges, stock acquisitions and the application of the predecessor/successor rules are discussed.

COD Income

Since 1994, financial institutions and the Federal government have been required to report COD under Sec. 6050P. Tax legislation in 1999 expanded this reporting requirement to any organization "a significant trade or business of which is the lending of money." As a result, finance companies, credit card companies and certain other businesses must issue Forms 1099-C, Cancellation of Debt, for debt discharges occurring after 1999.

Under Regs. Sec. 1.6050P-1(a)(1), a debt is deemed cancelled, and thus reportable, on the date that an "identifiable event" occurs. Regs. Sec. 1.6050P-1(b)(2) lists eight identifiable events, including:

* A cancellation under U.S. Code Title 11 (bankruptcy);

* An agreement between the creditor and debtor to cancel a debt at less than full consideration, if the last event necessary to cancel the debt has occurred;

* A cancellation resulting from a decision or a defined policy (including an established business practice) of the creditor to discontinue collection activity and cancel the debt; and

* The expiration of a"nonpayment testing period." This event is deemed to occur when the creditor has not received a payment on the debt during the prior 36-month period ending on December 31; however, the creditor can rebut the deemed occurrence if it has engaged in significant bona fide collection activity during the 12-month period ending on December 31 or if the facts and circumstances indicate that the debt has not been cancelled.

Debt cancellations must be reported if the cancelled debt is more than $600. The requirement applies to corporate debtors, as well as to individuals, partnerships, trusts, estates, associations and companies.

Many issues surround the 1999 expansion of COD reporting. For example, the legislative history does not define a "significant" lending activity, and does not make clear whether all discharges of debt by a company will be subject to reporting once the company is required to report, because a significant portion of its trade or business is the lending of money. However, in effect, lenders will have an extra year to resolve these...