How Does Cancellation of Debt Affect a Corporation?
Also known as COD, a Cancellation of Debt is the result of a creditor discharging or forgiving debt for less than the full amount owed. The amount the debtor is no longer required to pay is considered “canceled” in the eyes of the law, but that doesn’t necessarily mean the once-owed money simply disappears from the record.
When do you have to report cancellation of debt?
If this is the case, you need to report your canceled debt on on a Form 1099-C, or Cancellation of Debt, for the year the cancellation is set into place. The only time this tax doesn’t apply is if the law specifically states that it allows you to exclude the debt from your gross income.
