Form 1099-C - Canceled Debt Received by an S Corporation

If a Form 1099-C Cancellation of Debt for canceled debt is issued to an S Corporation, the income inclusion (or exclusion) is applied at the corporate level. If applicable, the corporation would then file Form 982 Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) with their tax return to report any tax attribute reductions.

To enter information on Form 982:

  1. From within your TaxAct return (Online or Desktop), click Federal. On smaller devices, click in the upper left-hand corner, then click Federal.
  2. Click Miscellaneous Topics in the Federal Quick Q&A Topics menu to expand, then click Reduction of Tax Attributes Due to Discharge of Indebtedness (Form 982).
  3. Continue with the interview process to enter all of the appropriate information.

Any taxable portion of the canceled debt income, after Section 108 exclusion, is passed on to the shareholders and would need to be included on each shareholder's tax return. This would be reported to the shareholders on Schedule K-1 (Form 1120-S) Shareholder’s Share of Income, Deductions, Credits, etc., Line 10 as Other income. Any information relating to the deferral or exclusion of income can be reported on Schedule K-1 (Form 1120-S), Line 17 as Other information.

Please see IRS Instructions for Form 1120-S U.S. Income Tax Return for an S Corporation and IRS Publication 908 Bankruptcy Tax Guide for additional information.

Note that any link in the information above is updated each year automatically and will take you to the most recent version of the document at the time it is accessed.