Can any creditor file a 1099-C for an unpaid debt?

Question

I provide outpatient anesthesia services for a plastic surgery center.

About four years ago, I filed an insurance claim for two patients for anesthesia services. Rather than send the payments to me, the insurance company sent the payments to the patients. The patients, however, did not pay me. The patients were sent to collections... that was fruitless. Now I'm ready to give-up collecting this debt. Can I file a 1099-C?

The IRS instructions specifically indicate the 1099-C is those whose primary business is lending money. However, while searching the internet I have come across examples of 1099-C filed for debts at a music store for an unpaid guitar or a jewerly store for unpaid gems.

Is the 1099-C only for those organizations whose lending of money is a significant part of their trade or business?

Answer 1

If you are willing to completely forgive the debt and not use any more collection efforts, you can file a 1099-C and you can deduct the debt from your taxable income provided you included the debt in your taxable income when the services were performed. If you are on a cash basis of accounting and do not account for the income until paid, you cannot deduct the debt from taxable income in the current year because it was not reported as income when earned.