Do you have a Related Finance Company (RFC)? Have you been considering starting one?
Have you filed your 1099-C yet? Do you know what that is?
The Auto Dealer Business School is committed to educating dealers on the best and most profitable business practices including helping you understand the form 1099-C.
1099-Cs: What You Need to Know
In recent years, Buy-Here-Pay-Here dealers have come under IRS scrutiny for noncompliance with Form 1099-C reporting requirements. With penalties of at least $250 per form and a fast-approaching deadline, here are a few key things you should know about 1099-Cs.
What is a 1099-C?
Form 1099-C "Cancellation of Debt" is a form the IRS requires "applicable financial entities" to issue when a debt of $600 or greater has been canceled or forgiven. In dealer speak, this translates to a charged off account with a net loss (after repo ACV recovery is applied) of $600 or more. Depending on the nature of charge off, you may or may not be required to issue the customer a 1099-C.
Who must file a 1099-C?
Related Finance Companies, among other applicable financial entities, are required to file Forms 1099-C. If you are a Buy-Here-Pay-Here dealer who does NOT have a Related Finance Company, these requirements do not apply to you.
When are 1099-Cs due?
1099-Cs must be issued and mailed to recipients by January 31. You must also file with the IRS by February 28, if paper filing, or by March 31, if filing electronically. It is important to note that you may be required to file electronically if you exceed a certain form amount.
Will this be taxable income to the recipient?
Maybe. While the recipient may be required to report the Form 1099-C as taxable income to the IRS, there are exceptions for certain bankruptcies and other situations. Additionally, if the recipient can demonstrate to the IRS that they were insolvent (had greater debts than assets) at the time of charge off, which is often the case, they will not be responsible for taxes on the debt cancellation.
Where can you find further information?
Please review the Form 1099-C instructions for further information. You may also reach out to Butler & Sanchez, LLC if you have any questions about 1099-Cs or other accounting and tax needs.
This article was contributed by Butler & Sanchez, LLC and was published with permission as part of a collaboration to educate auto dealers.
For your personalized strategy to start a car lot or grow your existing car lot, schedule a strategy session at http://www.autodealerbschool.as.me