IRS ANNOUNCES INTERIM RELIEF FROM PENALTIES FOR FAILURE TO COMPLY WITH DISCHARGE OF DEBT REPORTING REGS.

Notice 94-73

On December 23, 1993, the Internal Revenue Service issued temporary and proposed Income Tax Regulations under section 6050P of the Internal Revenue Code (58 F.R. 68301 and 68337) relating to the reporting of a discharge of indebtedness of $600 or more. Section 1.6050P-1T of these temporary regulations, which applies to a discharge of indebtedness after December 31, 1993, provides rules for the time, form, and manner of reporting a discharge of indebtedness under section 6050P. The regulations also provide guidance on when an indebtedness is considered discharged and the amount of indebtedness discharged for purposes of section 6050P. The regulations require that a discharge of indebtedness be reported on Form 1099-C, Cancellation of Debt.

A public hearing on the proposed regulations was held on March 30, 1994. In light of the testimony at the public hearing and the written comments received, the Service has determined that interim relief from penalties for failure to comply with certain of the reporting requirements of the temporary regulations is warranted.

Accordingly, with respect to a discharge of indebtedness occurring before the later of January 1, 1995, or the effective date of the final regulations under section 6050P, no penalties will be imposed for the failure to report a discharge of indebtedness:

(1) Under title 11 of the United States Code (section 1.6050P- 1T(a)(1)(v), section 1.6050P-1T(b)(2)(i)(A), and section 1.6050P- 1T(c)(2));

(2) Resulting from the expiration of the statute of limitations for collection of an indebtedness (section 1.6050P-1T(b)(2)(i)(C));

(3) For an amount other than principal in the case of indebtedness arising in connection with a lending transaction. For this purpose, a lending transaction is any transaction in which a lender extends credit (including revolving credit) to a borrower (section 1.6050P-1T(a)(1)(iii) and section 1.6050P-1T(c)(1)); or

(4) For a person other than the primary (or first-named) debtor in the case of indebtedness incurred before January 1, 1995, that involves multiple debtors (section 1.6050P-1T(d)(2)).

This Notice does not affect any of the reporting requirements under section 6050J of the Code (relating to foreclosures and abandonments of secured property).

The principal author of this notice is Michael F. Schmit of the Office of Assistant Chief Counsel (Income Tax and Accounting). For further information regarding this notice, contact Mr. Schmit on (202) 622-4960 (not a toll-free call).