WASHINGTON (1/15/15)--A current proposal from the Internal Revenue Service (IRS) to remove the 36-month non-payment testing period prong from cancellation of debt has the support of the Credit Union National Association. CUNA expressed support for the proposal in a comment letter filed with the IRS Tuesday.
"We believe the proposed change could result in reducing the regulatory compliance burden on reporting entities, including credit unions, in assessing whether a debt has been discharged," reads the letter, signed by Luke Martone, senior assistant general counsel at CUNA. "In addition, we believe the proposal may alleviate some taxpayer confusion that has resulted under the existing regulation."
The proposal would specifically remove a component of the IRS rule that a deemed discharge of indebtedness, for which a Form 1099-C, Cancellation of Debt, must be filed, occurs at the expiration of a 36-month non-payment period.
Credit unions and other covered financial institutions would no longer be required to file a 1099-C solely because a debtor failed to make payments for 36 months on an outstanding debt.
Under current regulation, the form must be used to cancel a debt income of $600 or more, if any of the right prongs mentioned in the rule exists. Seven of these prongs are specific instances resulting in a discharge of debt.
The eighth, the expiration of the non-payment testing period, does not result in a discharge of debt, but instead creates a "presumption of a deemed discharge of debt, nevertheless triggering the statue's information reporting requirements," the letter reads.