Getting Form 1099-C doesn’t always mean you owe tax on a discharged debt. A woman who intended to act as guarantor for her son on a truck loan mistakenly signed the financial paperwork at the dealership as the primary debtor. After the son ceased making payments on the loan, the lender sent the mom a 1099-C showing $8,164 in debt cancellation income. She didn’t report the figure on her return.
The 1099-C was wrong. There was never any true debtor-creditor relationship between the mom and the lender. She was the guarantor. Because she had no debt that was canceled, she doesn’t owe any tax (Bullock, TC Memo. 2017-219).